State Tax Commission of Missouri
|WIDEWATERS ST LOUIS COMPANY,||)|
|v.||)||Appeal Number 13-12938|
|JAKE ZIMMERMAN, ASSESSOR,||)|
|ST LOUIS COUNTY, MISSOURI,||)|
ORDER AFFIRMING HEARING OFFICER DECISION
On January 30, 2015, Hearing Officer Maureen Monaghan affirmed the market value placed upon the subject property by the St. Louis County Board of Equalization. Complainant appealed.
Standard Upon Review
A party subject to a Decision and Order of a hearing officer with the State Tax Commission may file an application requesting the case be reviewed by the Commission. The Commission may then summarily allow or deny their request. The Commission may affirm, modify, reverse or set aside the decision. The Commission may take any additional evidence and conduct further hearings.
Complainant appealed raising the following issues:
- The Hearing Officer erred in finding that Complainant failed to present sufficient evidence to rebut the conclusion of the Board of Equalization inasmuch as:
a. Complainant presented a written exhibit and expert testimony supporting its opinion of value based upon actual and historic income and expenses and a capitalization rate based upon national studies of hotel sales;
b. Respondent did not refute Complainant’s capitalization rates;
c. The Complainant can use actual and historic income and expenses so long as it uses a market capitalization rate; and
d. Complainant’s witness is a recognized expert in hotel valuation and his testimony was not refuted by the Respondent.
DISCUSSION AND RULING
The Hearing Officer states:
To develop a proper approach to value, the appraiser reviews the subject’s historical income data, the subject’s competition income information as well as the hotel industry for a determination as to the appropriate income to use.
* * * * *
[T]he appraiser should review the subject’s history of expense, the competitors’ history of expenses and the industry to estimate expenses for use in this (income) approach.
* * * * *
Complainant’s exhibits and written direct testimony fail to establish sufficient support for the opinion of value or the development of the opinion of value. The deficiencies include the appraiser’s failure to review the market and competitor’s income and expenses, failure to support the capitalization rate developed, and failure to provide support for the personal property, franchise and management adjustments.
Complainant’s Exhibit A, which its witness asserts is a “completed valuation of the hotel property”, is merely a five page document listing historical and forecasted income and expenses. No market income or expenses are considered or addressed. Complainant’s capitalization rate is based upon an unsupported band of investment. No discussion can be found concerning the return on/return of personal property or treatment of business value.
The testimony of an expert is to be considered like any other testimony, is to be tried by the same test, and receives just so much weight and credit as the trier of fact may deem it entitled to when viewed in connection with all other circumstances. An expert’s opinion must be founded upon substantial information, not mere conjecture or speculation, and there must be a rational basis for the opinion. Missouri Pipeline Co. v. Wilmes, 898 S.W. 2d 682, 687 (Mo. App. E.D. 1995). The State Tax Commission cannot ignore a lack of support in the evidence for adjustments made by the expert witnesses in the application of a particular valuation approach. Drey v. State Tax Commission, 345 S.W. 2d 228, 234-236 (Mo. 1961), Snider v. Casino Aztar/Aztar Missouri Gaming Corp., 156 S.W. 3d, 341, 348 (Mo. 2005).
Experts are expected to utilize accepted appraisal methodologies. Those methodologies necessarily include considering market data when attempting to determine market value. Complainant’s appraiser failed to consider market data and, therefore, his opinion of value does not rise to the level of substantial and persuasive evidence sufficient to rebut the presumption in favor of the Board of Equalization.
Summary and Conclusion
The Hearing Officer did not err in sustaining the decision of the Board of Equalization. Complainant has failed to state any error warranting a change in the Hearing Officer’s value.
The Decision and Order of the Hearing Officer, including the findings of fact and conclusions of law therein, is AFFIRMED and incorporated by reference, as if set out in full, in this final decision of the Commission.
Judicial review of this Order may be had in the manner provided in Sections 138.432 and 536.100 to 536.140, RSMo within thirty days of the mailing date set forth in the Certificate of Service for this Order.
If judicial review of this decision is made, any protested taxes presently in an escrow account in accordance with this appeal shall be held pending the final decision of the courts unless disbursed pursuant to Section 139.031.8, RSMo.
If no judicial review is made within thirty days, this decision and order is deemed final and the Collector of St. Louis 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.
SO ORDERED this 11th day of June, 2015.
STATE TAX COMMISSION
Bruce E. Davis, Chairman
Randy Holman, Commissioner
Victor Callahan, Commissioner
Certificate of Service
I hereby certify that a copy of the foregoing has been sent electronically or mailed postage prepaid this 11th day of June, 2015, to: Complainants(s) counsel and/or Complainant, the county Assessor and/or Counsel for Respondent and county Collector.
Steven May, SteveMayLaw@gmail.com, Attorney for Complainant
Ed Corrigan, STC-Correspondence@stlouisco.com, Attorney for Respondent
Jake Zimmerman, Assessor
Mark Devore, Collector
Genevieve Frank, Clerk
State Tax Commission of Missouri
|WIDEWATERS ST LOUIS COMPANY,||)|
|v.||)||Appeal Number 13-12938|
|JAKE ZIMMERMAN, ASSESSOR,||)|
|ST LOUIS COUNTY, MISSOURI,||)|
DECISION AND ORDER
Decision of the County Board of Equalization reducing the assessment made by the Assessor is AFFIRMED. Complainant did not present substantial and persuasive evidence to rebut the presumption of correct assessment by the Board of Equalization. True value in money for the subject property for tax years 2013 and 2014 is set at $5,700,000, commercial assessed value of $1,824,000.
Complainant appeared by Counsel Steve May.
Respondent appeared by counsel Paula Lemerman.
Case heard and decided by Hearing Officer Maureen Monaghan.
Complainant appeals, on the ground of overvaluation the decision of the St. Louis County Board of Equalization, which reduced the valuation of the subject property. The Commission takes this appeal to determine the true value in money for the subject property on January 1, 2013. The value as of January 1 of the odd numbered year remains the value as of January 1 of the following even numbered year unless there is new construction and improvement to the property. Section 137.115.1 RSMo
The Hearing Officer, having considered all of the competent evidence upon the whole record, enters the following Decision and Order.
FINDINGS OF FACT
- Jurisdiction. Jurisdiction over this appeal is proper. Complainant timely appealed to the State Tax Commission from the decision of the St. Louis County Board of Equalization.
- Evidentiary Hearing. The Evidentiary Hearing was scheduled for January 14, 2015. On January 13, 2015, the parties agreed to submit the appeal on the exhibits.
- Identification of Subject Property. The subject property is identified by map parcel number 28J110702. It is further identified as 6921 S. Lindbergh, St. Louis, MO 63125
- Description of Subject Property. The subject property is a 148 room hotel. No other information regarding the property may be established from the Exhibits.
- Sale of Subject. The subject property was purchased by Complainant on March 10, 2011 for $6,500,000. See, Methods of Valuation, infra.
- Assessment. The Assessor appraised the property at $6,946,800, an assessed commercial value of $2,222,976. The Board of Equalization reduced the true value to $5,700,000, assessed value of $1,824,000.
- Complainant’s Evidence. Exhibit A is entitled “Valuation using Income and Expenses.” It is five pages in length. Page 1 sets forth information from January 1, 2012 to December 31, 2012. The information includes the number of rooms, the occupancy, the average rate, revenues, expenses, and reserves. Page 2 purports to be a cap rate calculation. Page 3 purports to be a cap rate calculation and valuation estimate. Page 4 is titled “Valuation using adjusted Income and Expense.” Page 5 is entitled “Calculation of Value.” Complainant submitted the written direct testimony of Thomas Dolan which the Hearing Officer has marked as Exhibit B. Thomas Dolan has been recognized as an expert in hotel valuation with the State Tax Commission.
- No Evidence of New Construction & Improvement. There was no evidence of new construction and improvement from January 1, 2013, to January 1, 2014, therefore the assessed value for 2013 remains the assessed value for 2014. Section 137.115.1, RSMo.
- Respondent’s Evidence. Complainant agreed to allow Respondent to submit exhibits out of time. Respondent submitted Exhibit 1 on January 20, 2015. The Exhibit included a Commercial Sales Summary Worksheet, Property Record Card, Certificate of Value dated March 8, 2011 and the Deed.
- Presumption of Correct Assessment Not Rebutted. Complainant’s evidence was not substantial and persuasive to rebut the presumption of correct assessment by the Board.
CONCLUSIONS OF LAW AND DECISION
The Commission has jurisdiction to hear this appeal and correct any assessment which is shown to be unlawful, unfair, arbitrary or capricious. The Hearing Officer shall issue a decision and order affirming, modifying or reversing the determination of the board of equalization, and correcting any assessment which is unlawful, unfair, improper, arbitrary, or capricious. Article X, Section 14, Mo. Const. of 1945; Sections 138.430, 138.431, 138.431.4, 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 for the property under appeal. By statute real and tangible personal property are assessed at set percentages of true value in money. Section 137.115.5, RSMo – residential property at 19% of true value in money; commercial property at 32% of true value in money and agricultural property at 12% of true value in money.
Presumption In Appeal
There is a presumption of validity, good faith and correctness of assessment by the County Board of Equalization. Hermel, Inc. v. STC, 564 S.W.2d 888, 895 (Mo. banc 1978); Chicago, Burlington & Quincy Railroad Co. v. STC, 436 S.W.2d 650, 656 (Mo. 1968); May Department Stores Co. v. STC, 308 S.W.2d 748, 759 (Mo. 1958). The presumption is not evidence of value.
The presumption of correct assessment is rebutted when the taxpayer presents substantial and persuasive evidence to establish that the Board’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).
Substantial evidence can be defined as such relevant evidence as a reasonable mind might accept as adequate to support a conclusion. See, Cupples-Hesse, supra. 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).
Standard for Valuation
Section 137.115, RSMo, 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 which a property should bring in competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeable and assuming the price is not affected by undue stimulus.
Implicit in this definition are the consummation of a sale as of a specific date and the passing of title from seller to buyer under conditions whereby:
- 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.
STC Approved Hotel Valuation Guidelines
Valuing Hotel or Motel Property
The income approach is the most appropriate approach for income producing properties such as hotels. Hotels are specialized income producing properties within the income being derived from land, improvements, personal property and the business operation. In the real estate appraisal industry, the market value of a hotel is considered to consist of four components (1) value of the land; (2) value of the improvements; (3) value of the business or going concern and franchise affiliation; and (4) value of the furniture, fixtures and equipment (i.e. personal property). John Hancock Mutual Life v. Stanton, 51 STC Proceedings and Decisions, 1996, p. 394. Lesser and Rubin, Understanding the Unique Aspects of Hotel Property Tax Valuation, The Appraisal Journal, January, 1993, p. 17. For appraisal purposes, fixtures such as bathtubs and sinks are valued as part of the real property. Property Appraisal and Assessment Administration, International Association of Assessing Officers, 1990, p. 76.
The issue is this case is the valuation of the land and improvements. Therefore, appraisers must separate the components. There are two valuation approaches for hotels: Business Enterprise Approach and the Rushmore Approach. The Rushmore Approach is a more persuasive methodology and has been recognized by the Missouri State Tax Commission. The Rushmore approach excludes the value of and income derived from fixtures, furniture and equipment (FF&E) and adjustments are made for replacement of the property and for a return on the FF&E. Rushmore also deducts the expenses for items such as management fees, franchise fees and marketing to address the value derived from the business component.
To develop a proper approach to value, the appraiser reviews the subject’s historical income data, the subject’s competition income information as well as the hotel industry for a determination as to the appropriate income to use. The appraiser determines if the subject is over or under performing in comparison to the market.
Allowable operating expenses are ordinary and typical expenses that are necessary to keep the property functional and rented competitively with other properties in the area, but do not include interest and principal payments that amortize a mortgage loan, depreciation, income tax, capital improvements, owner’s business expenses, or property taxes. Property taxes are treated as part of the capitalization rate. Property Appraisal and Assessment Administration, International Association of Assessing Officers, 1990, p. 256-259. Property Assessment Valuation, International Association of Assessing Officers, 1977, p. 215-221. Diamond Savings Association v. A. Roy Pearson, State Tax Commission Appeal No. 92-41024. John Hancock Mutual Life v. Stanton, 51 STC Proceedings and Decisions, 1996, p. 394.
Once again the appraiser should review the subject’s history of expense, the competitors’ history of expenses and the industry to estimate expenses for use in this approach.
Return on Personal Property
The return on personal property to be deducted from a hotel’s income and expense statements can be calculated by (1) using the market value of the personal property as shown on the assessment rolls; (2) actual appraisal of the personal property; or (3) using the depreciated book value of the personal property. Because of the rapidity with which short-lived items are depreciated, the depreciated book value can be considered a “floor” on the value of the personal property. Its use in the return on personalty calculation thus results in the most conservative (i.e., lowest) estimate possible for a return on personal property, given any benefit of the doubt to the value of the hotel’s real estate component. Chattel mortgages for hotel furniture, fixtures and equipment are generally not available in the marketplace. Therefore, interest rates on hotel mortgages establish a minimum required rate of return on personalty. Return on personalty is determined by adding the capitalization rate for the real property to the tax load or effective tax rate per $100 of the personal property and multiplying same by the assessed value of the personal property. In attempting to segregate personal property from real estate, the primary consideration in valuing the personal property is its actual contributory value, not its hypothetical replacement cost new less depreciation. Lesser and Rubin, Understanding the Unique Aspects of Hotel Property Tax Valuation, The Appraisal Journal, January 1993, P. 33, Crown Center, supra, p. 439, John Hancock, supra, p. 396.
Return of Personal Property
Periodic replacement of furniture, fixtures and equipment is essential to maintain the quality, image, and income potential of a lodging facility. An appraisal should reflect these expenses in the form of an appropriate reserve for replacement. The deduction of a reserve for replacement from the stabilized statement of income and expense can therefore be used to account for the return of personal property. Lesser and Rubin, Understanding the Unique Aspects of Hotel Property Tax Valuation, The Appraisal Journal. January, 1993, p. 21, 22. Crown Center, supra, p. 440.
Hotel Management and Business Value
Management companies generally offer their brand names, corporate identities, and reservation systems solely in conjunction with their management expertise. The process of isolating the value of a hotel’s business is based on the premise that by employing a professional management agent to handle the day-to-day operation of the property, an owner maintains only a passive interest, while income attributed to the business has been taken by the managing agent in the form of a management fee. Therefore, deduction of a management fee from the stabilized net income removes a portion of the business component from the stabilized income stream. Hotel management contracts are routinely structured with fees payable in two parts. The first part is the base management fee. This portion of the fee is usually based on a percentage of gross revenue and as such may be considered payment to the management company for the portion of its services that include building the hotel’s gross revenues. The second part of a typical management fee is called the incentive management fee and is usually based on a percentage of some level of net income. As such, this portion of the fee may be deemed payment to the management company for the portion of its services that include monitoring the hotel’s expenses and implementing the required control systems. Additionally, lodging facilities operated with a franchise affiliation provided by a third party are subject to the payment of franchise fees. Deducting the franchise fees from the stabilized net income removes the remaining business component from the income stream. Lesser and Rubin, Understanding the Unique Aspects of Hotel Property Tax Valuation, The Appraisal Journal, April 1984, p. 280-291; Crown Center, supra at p. 438. John Hancock, supra at p. 397. The business value component of a hotel is accounted for through the franchise fee and the management fee. If these two items are calculated as expense items, no additional calculation is necessary to remove their impact from net operating income. Going concern value can be treated in one of two ways: The appraisers can leave the management and franchise fees in the expenses calculations, in which case no further calculation is necessary. Or, alternatively, they may remove those fees from the expenses and treat them separately. John Hancock, supra. p. 397. Leaving management and franchise fees in the expense calculations and then making further adjustments for business value results in stating business value twice and understating the value of the real property. Once again the appraiser should review the subject’s history of expense, the competitors’ history of expenses and the industry to estimate expenses for use in this approach.
A capitalization rate used to develop an indication of value is developed by reviewing sales of hotels and market publications.
Experts – Requirement for Substantial Evidence
An expert’s opinion must be founded upon substantial information, not mere conjecture or speculation, and there must be a rational basis for the opinion. Missouri Pipeline Co. v. Wilmes, 898 S.W. 2d 682, 687 (Mo. App. E.D. 1995). The facts upon which an expert’s opinion is based, like the facts sufficient to support a verdict, must measure up to the legal requirements of substantiality and probative force; the question of whether such opinion is based on and supported by sufficient facts or evidence to sustain the same is a question of law for the court. Robinson v. Empire Gas Inc. of Hartville, 906 S.W.2d 829 (S.D. 1995).
The State Tax Commission cannot ignore a lack of support in the evidence for adjustments made by the expert witnesses in the application of a particular valuation approach. Drey v. State Tax Commission, 345 S.W.2d 228, 234-236 (Mo. 1961), Snider v. Casino Aztar/Aztar Missouri Gaming Corp., 156 S.W.3d, 341, 348 (Mo. 2005). Complainant’s Exhibits and written direct testimony fail to establish sufficient support for the opinion of value or the development of the opinion of value. The deficiencies include the appraiser’s failure to review the market and competitor’s income and expenses, failure to support the capitalization rate developed, and failure to provide support for the personal property, franchise and management adjustments.
Sale of Subject
Evidence of the actual sales price of property is admissible to establish value at the time of an assessment, provided that such evidence involves a voluntary purchase not too remote in time. The actual sale price is a method that may be considered for estimating true value. The actual sales price, between a willing seller who is not obligated to sell and a willing buyer who is not compelled to buy, establishes an outer limit on the value of real property. St. Joe Minerals Corp. v. STC, 854 S.W.2d 526 (App. E.D. 1993). Respondent information regarding the sale of the property in 2011 provides support for the Board’s value.
The assessed valuation for the subject property as determined by the Board of Equalization for St. Louis County for the subject tax day is AFFIRMED.
The assessed value for the subject property for tax years 2013 and 2014 is set at $1,824,000.
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
The Collector of St. Louis 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 this 30th day of January, 2015.
STATE TAX COMMISSION OF MISSOURI
Certificate of Service
I hereby certify that a copy of the foregoing has been mailed postage prepaid on this 30th day of January, 2015 to: Steven May, PO Box 39361, St Louis, MO 63139, Attorney for Complainant; Paula Lemerman, Attorney for Respondent, County Government Center, 41 South Central Avenue, Clayton, MO 63105; Jake Zimmerman, Assessor, County Government Center, 41 South Central Avenue, Clayton, MO 63105; Mark Devore, Collector, County Government Center, 41 South Central Avenue, Clayton, MO 63105.