STATE TAX COMMISSION OF MISSOURI
|VSUJ LIBERTY, LLC||)||Appeal No. 19-32026|
|)||Parcel No. 14-303-00-04-009.00|
|CATHY RINEHART, ASSESSOR,||)|
|CLAY COUNTY, MISSOURI,||)|
DECISION AND ORDER
VSUJ Liberty, LLC (Complainant) appeals the Clay County Board of Equalization’s (BOE) decision finding the true value in money (TVM) of the subject property on January 1, 2019, was $1,388,000, with an assessed value of $444,160. Complainant claims the property is overvalued and proposes a value of $870,000. Complainant produced substantial and persuasive evidence to rebut the BOE presumption. The BOE’s decision is set aside.
Complainant was represented by counsel John Lentell. Cathy Rinehart, Assessor of Clay County, Missouri (Respondent) was represented by counsel Patricia Hughes. The evidentiary hearing was conducted on November 17, 2020.
FINDINGS OF FACT
- Subject Property. The subject property is located at 8600-8606 N. Church Road in Kansas City, Clay County, Missouri. The parcel/locator number is 14-303-00-04-009.00.
The subject property consists of a .79 acre lot and a one-building, multi-tenant retail strip center containing 6,000 square feet of gross leasable area. Complainant purchased the subject property on May 2, 2018, for $1,545,000 (Respondent’s Rebuttal Ex. 2, Page 397) (Settlement Statement) or $1,565,000 (Respondent’s Rebuttal Ex. 3, Page 399) (CoStar).
- Respondent and BOE. Respondent classified the subject property as commercial and determined the TVM on January 1, 2019, was $1,388,000. The BOE classified the subject property as commercial and independently determined the TVM on January 1, 2019, was $1,388,000.
- Complainant’s Evidence. Complainant testified the TVM of the subject property on January 1, 2019, was below the TVM established by the BOE. Dr. Veeral Bhoot, the managing member of Complainant, testified that the purchase price of the subject property has unique financing circumstances, which were in part driven by an available low-interest rate loan program operated by the State of Missouri known as the Missouri First Loan Program. Dr. Bhoot testified that he was able to utilize an existing property he owned (his medical building) as a refinance mechanism to obtain advantageous returns using the subject property as the vehicle for reinvestment. Dr. Bhoot utilized Equity Bank and its services. Dr. Bhoot testified Equity Bank suggested that getting approved through the program would allow him to leverage the down payment to acquire new property with a minimal down payment. Dr. Bhoot testified he paid more for the subject property than TVM. He testified that due to an unfavorable amortization schedule with Equity Bank that the property was refinanced with Wells Fargo and that $865,000 to $875,000 was attributed to the subject property TVM. Complainant submitted the following exhibits:
|Written Direct Testimony (WDT)||WDT Dr. Veeral Bhoot||Admitted|
|Written Direct Testimony (WDT)||WDT Troy Smith (Complainant’s Appraiser)||Admitted|
|Exhibit A||Appraisal Of Complainant’s Appraiser||Admitted|
Complainant’s Appraiser is president of Veracity Valuation. He is a MAI certified appraiser, licensed in 13 states, who has completed appraisals of all types of properties since 1992. Complainant’s Appraiser employed the sales comparison and income approaches to value. He testified about the aesthetics, landscaping, signage, and nature of the subject parking lot and compared the subject property to the three comparables utilized in Respondent’s income approach, identifying the comparables as superior.
Complainant’s Appraiser conducted a sales comparison analysis in which he utilized four comparable properties. He made adjustments for market conditions, size, and age/quality/condition. His adjusted sale prices per square foot were $150.07, $149.72, $166.11, and $147.90. Complainant’s Appraiser concluded a TVM under the sales comparison approach of $870,000.
Complainant’s Appraiser conducted an income approach analysis in which he utilized four comparable market leases. The four comparables, as listed in Complainant’s Appraiser’s appraisal, had lease rates per square foot of $17.00, $19.22, $15.00, and $14.50. However, during the evidentiary hearing, Complainant’s Appraiser requested a change to his appraisal to reflect rental rates per square foot for the four leases at the subject property, as of January 1, 2019, of $19.00/sq. ft., $20.00/sq. ft., $19.50 sq. ft., and 19.25/sq. ft. Complainant’s Appraiser also calculated reimbursable income since market leases are generally on a triple net basis. He estimated vacancy, collection loss, and expenses. Complainant’s Appraiser developed a capitalization rate utilizing direct capitalization and the band of investment. Complainant’s Appraiser’s concluded TVM under the sales approach was $870,000.
In Complainant’s Appraiser’s appraisal, his reconciled TVM was $870,000. However, during the evidentiary hearing, Complainant’s Appraiser recalculated his TVM under the income approach utilizing $20.00/sq. ft. based upon the correct lease rates at the subject property. Complainant’s Appraiser testified this resulted in a valuation of $1,040,000, which he would be comfortable with as the TVM for the subject property.
- Respondent’s Evidence. Respondent’s appraiser, Grant Knauff (Respondent’s Appraiser) testified the TVM of the subject property on January 1, 2019, was $1,338,800. Respondent submitted the following exhibits:
|Written Direct Testimony (WDT)||WDT Respondent’s Appraiser||Admitted|
|Exhibit 1||Valuation Report||Admitted|
|Exhibit 2||Valuation Report Appendix||Admitted|
|Rebuttal Exhibits||Rebuttal Exhibits 2-6||Admitted|
Respondent’s Appraiser is an employee of Clay County and issued his appraisal under the exemption from licensure pursuant to Section 339.501.5(3). Respondent’s Appraiser considered all three approaches in determining TVM. He gave the most weight to the income approach.
Under the cost approach, Respondent’s Appraiser concluded on a replacement cost new less deprecation of $1,500,308. Under the sales comparison approach, Respondent’s Appraiser utilized four comparable properties. Respondent’s Appraiser listed the sales prices of the four comparables in his appraisal; however, he made no adjustments between the comparables and the subject property and opined no TVM under the sales comparison approach.
Under the income approach, Respondent’s Appraiser utilized three comparable properties. The three comparables had lease rates per square foot of $24.40, $19.87, and $17.09. He listed the common area maintenance (CAM) charges for each at $5.97, $8.07, and $5.44 respectively. He listed the investment grade of the subject as A- and the three comparables all at B+. In a table, Respondent’s Appraiser listed the rental rate for class A property at $22.00+ and the rental rate for class B property at $15.00-$22.00. He estimated vacancy, collection loss, and expenses. Respondent’s Appraiser developed a capitalization rate utilizing market surveys. Complainant’s Appraiser’s concluded TVM under the sales approach was $1,336,600.
Respondent’s Appraiser’s reconciled TVM in his appraisal report was $1,388,800.
- Value. The TVM of the subject property on January 1, 2019, was $1,040,000, with an assessed value of $332,800.
- No Evidence of New Construction & Improvement. There was no evidence of new construction and improvement from January 1, 2019, to January 1, 2020, therefore the assessed value for 2019 remains the assessed value for 2020. Section 137.115.1.
CONCLUSIONS OF LAW
- Assessment and Valuation
Pursuant to Article X, Sections 4(a) and 4(b), Mo. Const. of 1945, real property and tangible personal property is 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. Commercial real property is assessed at 32% of its TVM as of January 1 of each odd-numbered year. Section 137.115.5(1)(c). “True value in money is the fair market value of the property on the valuation date, and is a function of its highest and best use, which is the use of the property which will produce the greatest return in the reasonably near future.” Snider v. Casino Aztar/Aztar Mo. Gaming Corp., 156 S.W.3d 341, 346 (Mo. banc 2005) (internal quotation omitted). The fair market value is “the price which the property would bring from a willing buyer when offered for sale by a willing seller.” Mo. Baptist Children’s Home v. State Tax Comm’n, 867 S.W.2d 510, 512 (Mo. banc 1993). Determining the TVM is a factual issue for the STC. Cohen v. Bushmeyer, 251 S.W.3d 345, 348 (Mo. App. E.D. 2008). The “proper methods of valuation and assessment of property are delegated to the Commission.” Savage v. State Tax Comm’n, 722 S.W.2d 72, 75 (Mo. banc 1986).
“For purposes of levying property taxes, the value of real property is typically determined using one or more of three generally accepted approaches.” Snider, 156 S.W.3d at 346. The three generally accepted approaches are the cost approach, the income approach, and the comparable sales approach. Id. at 346-48; see also St. Louis Cty. v. Sec. Bonhomme, Inc., 558 S.W.2d 655, 659 (Mo. banc 1977).
The income approach “is most appropriate in valuing investment-type properties and is reliable when rental income, operating expenses, and capitalization rates can reasonably be estimated from existing market conditions.” Snider, 156 S.W.3d at 347. “The income approach determines value by estimating the present worth of what an owner will likely receive in the future as income from the property.” Id. “The income approach is based on an evaluation of what a willing buyer would pay to realize the income stream that could be obtained from the property when devoted to its highest and best use.” Id. (internal quotation omitted). “When applying the income approach to valuing business property for tax purposes, it is not proper to consider income derived from the business and personal property; only income derived from the land and improvements should be considered.” Id.
The hearing officer is the finder of fact and determines the credibility and weight of the evidence. Kelly v. Mo. Dep’t of Soc. Servs., Family Support Div., 456 S.W.3d 107, 111 (Mo. App. W.D. 2015). The finder of fact in an administrative hearing determines the credibility and weight of expert testimony. Hornbeck v. Spectra Painting, Inc., 370 S.W.3d 624, 632 (Mo. banc 2012). “It is within the purview of the hearing officer to determine the method of valuation to be adopted in a given case.” Tibbs v. Poplar Bluff Assocs. I, L.P., 599 S.W.3d 1, 9 (Mo. App. S.D. 2020). The hearing officer “may inquire of the owner of the property or of any other party to the appeal regarding any matter or issue relevant to the valuation, subclassification or assessment of the property.” Section 138.430.2. The Hearing Officer’s decision regarding the assessment or valuation of the property may be based solely upon his inquiry and any evidence presented by the parties, or based solely upon evidence presented by the parties. Id.
- Complainant’s Burden of Proof
The BOE’s valuation is presumptively correct. Rinehart v. Laclede Gas Co., 607 S.W.3d 220, 227 (Mo. App. W.D. 2020). To prove overvaluation, a taxpayer must rebut the BOE’s presumptively correct valuation and prove the “value that should have been placed on the property.” Snider, 156 S.W.3d at 346. The taxpayer’s evidence must be both “substantial and persuasive.” Id. “Substantial evidence is that evidence which, if true, has probative force upon the issues, and from which the trier of fact can reasonably decide the case on the fact issues.” Savage, 722 S.W.2d at 77 (internal quotation omitted). Evidence is persuasive when it has “sufficient weight and probative value to convince the trier of fact.” Daly v. P.D. George Co., 77 S.W.3d 645, 651 (Mo. App. E.D. 2002); see also White v. Dir. of Revenue, 321 S.W.3d 298, 305 (Mo. banc 2010) (noting the burden of persuasion is the “party’s duty to convince the fact-finder to view the facts in a way that favors that party”). A taxpayer does not meet his burden if the evidence on any essential element of his case leaves the STC “in the nebulous twilight of speculation, conjecture and surmise.” See, Rossman v. G.G.C. Corp. of Missouri, 596 S.W.2d 469, 471 (Mo. App. 1980).
- Complainant Proved Overvaluation
The Hearing Officer was convinced by Complainant that the purchase price paid for the subject property was influenced by special financing and did not indicate the TVM for the subject property. Additionally, the hearing officer was more persuaded by the appraisal of Complainant’s Appraiser than the appraisal of Respondent’s Appraiser. The Hearing Officer was not persuaded that the subject property is an investment-grade A- property, especially compared to the three comparables presented in Respondent’s income approach analysis. Investment-grade depends upon age, amenities, aesthetics, and infrastructure. Nothing during the hearing induced belief in the Hearing Officer that the subject property is an investment-grade A- commercial property. On the contrary, based upon the testimony at the evidentiary hearing, the basic façade of the subject property, the basic signage of the subject property, the lack of landscaping at the subject property, and the nature of the parking lot at the subject property, the Hearing Officer is not persuaded subject property warrants an investment-grade A-. Additionally, Respondent’s evidence established that investment-grade B properties have rental rates between $15.00 and $22.00 per square foot. The $20.00 per square foot figure put forth by Complainant’s Appraiser falls well within this range.
CONCLUSION AND ORDER
The BOE decision is Set Aside. The TVM of the subject property as of January 1, 2019, was $1,040,000, with an assessed value of $332,800.
Application for Review
A party may file with the Commission an application for review of this decision within 30 days of the mailing date set forth in the certificate of service for this decision. The application “shall contain specific detailed grounds upon which it is claimed the decision is erroneous.” Section 138.432. The application must be in writing, and may be mailed to the State Tax Commission, P.O. Box 146, Jefferson City, MO 65102-0146, or emailed to Legal@stc.mo.gov. A copy of the application must be sent to each person listed below in the certificate of service.
Failure to state specific facts or law upon which the application for review is based will result in summary denial. Section 138.432.
The Collector of Clay 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.
SO ORDERED January 29, 2021.
STATE TAX COMMISSION OF MISSOURI
John J. Treu
Senior Hearing Officer
Certificate of Service
I certify that on January 29, 2021, a copy of the foregoing was sent via email to
Complainant(s) and/or Counsel for Complainant(s), the County Assessor and/or Counsel for Respondent and County Collector.
 Complainant timely filed a complaint for review of assessment. The State Tax Commission (STC) has authority to hear and decide Complainant’s appeal. Mo. Const. art. X, Section 14; section 138.430.1, RSMo 2000. All statutory citations are to RSMo 2000, as amended.
 The Hearing Officer heard the appeal and drafted this Decision and Order prior to his departure from employment with the STC.