STATE TAX COMMISSION OF MISSOURI
| YOGIJIKRUPA HOSPITALITY-C LLC, | ) | Appeal No. 19-89506 |
| ) | 18-1-0-01-002-003-007.000 | |
| Complainant, | ) | |
| ) | ||
| v. | ) | |
| ) | ||
| CHUCK PENNEL, ASSESSOR, | ) | |
| TANEY COUNTY, MISSOURI, | ) | |
| ) | ||
| Respondent. | ) |
|
DECISION AND ORDER AMENDED NUNC PRO TUNC[1]
Yogijikrupa Hospitality C LLC (Complainant) appeals the Taney County Board of Equalization’s (BOE) decision finding the true value in money (TVM) of the subject property on January 1, 2019, was $5,674,687, with a commercial assessed value of $1,815,900. Complainant claims the property is overvalued and proposes a value of $2,995,000. Complainant produced substantial and persuasive evidence establishing overvaluation. The BOE’s decision is SET ASIDE.[2]
Complainant was represented by counsel Jerome Wallach. Chuck Pennel, Assessor of Taney County, Missouri (Respondent) was represented by counsel Bob Paulson. The evidentiary hearing was conducted on September 16, 2020.
FINDINGS OF FACT
- Subject Property. The subject property is located at 2820 W. 76 County Boulevard, Branson, Taney County, Missouri. The parcel/locator number is 18-1.0-01-002-003-007.000.
The subject property consists of 3.34 acres improved by a 4+ story hotel built in 1992. The hotel has a gross building area of 97,362 square feet and contains 166 units. The subject property was purchased by Complainant on July 3, 2018, for $6,400,000.
- Respondent and BOE. Respondent classified the subject property as commercial and determined the TVM on January 1, 2019, was $5,674,687. The BOE classified the subject property as commercial and independently determined the TVM on January 1, 2019, was $5,674,687.
- Complainant’s Evidence. Complainant’s asserted that the TVM of real property component of the subject property on January 1, 2019, was $2,955,000. Complainant submitted the following exhibits:
| Exhibit | Description |
| Exhibit A | Appraisal of Bagus Priambodo |
| Exhibit B | Written Direct Testimony of Bagus Priambodo |
Exhibits A and B were admitted without objection. Bagus Priambodo (Complainant’s Appraiser) is a Missouri Certified General Real Estate Appraiser. Complainant’s Appraiser prepared an appraisal of the subject property.
Complainant’s Appraiser concluded an “as is” value of the going concern of $6,000,000. Complainant’s Appraiser concluded a Business Enterprise Value (BEV) of $2,235,000 and concluded a value of the furniture, fixtures, and equipment (FF&E) of $810,000.
Complainant’s Appraiser utilized both the sales comparison and income approaches to value the subject property. Under the sales approach, Complainant’s Appraiser utilized four comparable sales to which he made adjustments for differences between the subject property and each comparable and concluded a TVM of $6,430,000. Under the income approach, Complainant’s Appraiser reviewed the subject property’s statement of revenue and expenses and annualized them. However, Complainant’s Appraiser noted that the subject property had been acquired by a new owner during mid-year 2018, so the subject property’s profit and loss would not be considered to be typical of a full stabilized year. Accordingly, Complainant’s Appraiser calculated pro forma income and expenses.
Complainant’s Appraiser stated he utilized the Rushmore method to value the subject property. Using pro forma figures, Complainant’s Appraiser calculated effective gross income, general expenses, franchise fee, management fee, reserves for replacement, and net operating income. After applying a capitalization rate of 10.97%, Complainant’s Appraiser concluded a total TVM of the going concern of $6,000,000. After deducting the BEV of $2,235,000 and the FFE of $810,000, Complainant’s Appraiser concluded a TVM under the income approach of $2,995,000 for the real property component of the subject property as of January 1, 2019. Exhibit A
- Respondent’s Evidence. Respondent offered no evidence.
- Value. The TVM of the subject property on January 1, 2019, was $5,193,555, with a commercial assessed value of $1,661,938.
- 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. 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 comparable sales approach “is most appropriate when there is an active market for the type of property at issue such that sufficient data are available to make a comparative analysis.” Snider, 156 S.W.3d at 348. For this reason, the comparable sales approach is typically used to value residential property. “The comparable sales approach uses prices paid for similar properties in arms-length transactions and adjusts those prices to account for differences between the properties.” Id. at 347-48 (internal quotation omitted). “Comparable sales consist of evidence of sales reasonably related in time and distance and involve land comparable in character.” Id. at 348.
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.
- Evidence
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).
- 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). In the present appeal, the sales price alone would not be appropriate to estimate the value as such price would include the value of the going concern value of the business and the furniture, fixtures, and equipment.
- Valuing Hotel or Motel Property
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, 1996 WL 663128 (Mo.St.Tax.Com.), citing Lesser and Rubin, Understanding the Unique Aspects of Hotel Property Tax Valuation, The Appraisal Journal, January 1993, p. 17. Hotels and motels are almost always valued by an income capitalization approach that takes the property’s stabilized net income and capitalizes it into an estimate of market value. The stabilized net income is intended to reflect the anticipated operating results of the hotel over its remaining economic life, given any or all applicable stages of buildup, plateau, and decline in the life cycle. Therefore such stabilized net income excludes from consideration any abnormal relation of supply and demand and any transitory or nonrecurring conditions that may result in unusual revenues or expenses of the property. The process of deriving the stabilized net income for a lodging facility requires the appraiser to look into the future and estimate operating revenues and expenses. This is accomplished by forecasting or predicting trends in historical performance based on the hotel’s current position in an economic life cycle. John Hancock Mutual Life, 1996 WL 663128.
- Discussion
The STC recognizes the Rushmore Approach for the valuation of hotel properties. Such methodology has been recognized by state and federal courts, and by hotel owners and assessors’ offices, as the most appropriate approach for valuing hotel properties. The valuation methodology was developed by Stephen Rushmore, who has been extensively published on the valuation of hotels and motels. The Rushmore methodology has been the leading standard for the valuation of hotels for over twenty years. The Rushmore methodology excludes the value of any income derived from FF&E and adjustments are made for replacement of the property and for a return on the FF&E. The Rushmore method also deducts the expenses for items such as management fees, franchise fees, and marketing to address the value derived from the business component.
The sales price of the subject property and Complainant’s Appraiser’s opined values under each approach are summarized in the table below:
| Complainant’s Appraiser | |
| Sales Price July 3, 2018 | $6,400,000 |
| Cost Approach TVM for FF&E | $810,000 |
| Sales Approach TVM Real Property | $6,430,000 |
| Income Approach TVM Real Property | $2,995,000 |
| Reconciled TVM Real Property | $2,995,000 |
Although Complainant’s Appraiser stated he utilized the Rushmore method in his income approach, an error in the calculations occurred. Two formulas can easily be utilized under the Rushmore method. Both account for deducting the business component of the hotel and the FF&E of the hotel. With the Hearing Officer accepting all of the pro forma numbers calculated by Complainant’s Appraiser and inserting them into the recognized formulas, a higher TVM is produced, as shown on the following chart:
Method #1 |
Method #2 |
||||
| EGI | $ | 2,278,790 | EGI | $ | 2,278,790 |
| Expenses | $ | (1,271,545) | Expenses | $ | (1,271,545) |
| Franchise Fee | $ | (200,534) | Reserve for Replacement | $ | (82,036) |
| Management Fee | $ | (66,085) | NOI | $ | 925,209 |
| Reserve for Replacement | $ | (82,036) | Cap Rate 10.97% | 0.1097 | |
FF&E x Cap Rate |
$ | (88,857) | TVM Entire Property | $ | 8,433,993 |
| NOI | $ | (569,733) | Franchise Fee/Cap Rate | $ | (1,828,022) |
| Add back Cap Rate 10.97% | 0.1097 | Management Fee/Cap Rate | $ | (602,416) | |
| TVM Real Property Component | $ | 5,193,555 | FF&E | $ | (810,000) |
| TVM Real Property Component | $ | 5,193,555 | |||
CONCLUSION AND ORDER
The assessed valuation for the subject property as determined by Respondent and sustained by the BOE for Taney County for the subject tax day is SET ASIDE.
The true value in money of the subject property for tax years 2019 and 2020 is $5,193,555, commercial assessed value of $1,661,938.
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 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, or emailed to Legal@stc.mo.gov, and a copy of said 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.
Disputed Taxes
The Collector of Taney 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.
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 29th day of January, 2021.
STATE TAX COMMISSION OF MISSOURI
John J. Treu[3]
Senior Hearing Officer
Certificate of Service
I hereby certify that a copy of the foregoing has been sent electronically or mailed postage prepaid this 29th day of January, 2021, to: Complainant(s) and/or Counsel for Complainant(s), County Assessor and/or Counsel for Respondent County Collector.
Elaina McKee
Legal Coordinator
[1] This Decision and Order is amended nunc pro tunc to correct a scrivener’s error in the signature block and in the Certificate of Service. In the previously-published version of the Decision and Order, the year reported in the signature block and in the Certificate of Service was incorrectly typed as “2020” rather than “2021.” The Decision and Order remains otherwise unchanged.
[2] 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.
[3] The Hearing Officer heard the appeal and drafted this Decision and Order prior to his departure from employment with the STC.