STATE TAX COMMISSION OF MISSOURI
| YOGIJIKRUPA HOSPITALITY-C LLC, | ) | Appeal No. 19-89506 |
| ) | ||
| Complainant, | ) | |
| ) | ||
| v. | ) | |
| ) | ||
| CHUCK PENNEL, ASSESSOR, | ) | |
| TANEY COUNTY, MISSOURI, | ) | |
| Respondent. | ) |
ORDER AFFIRMING
HEARING OFFICER DECISION UPON APPLICATION FOR REVIEW
HOLDING
On January 29, 2021, a State Tax Commission (STC) Senior Hearing Officer (Hearing Officer) entered a Decision and Order (Decision) setting aside the decision of the Taney County Board of Equalization (BOE) and finding the subject property’s true value in money (TVM) as of January 1, 2019[1], was $5,193,555, with a commercial assessed value of $1,661,938. Yogijikrupa Hospitality-C (Complainant) subsequently filed a timely Application for Review of the Decision of the Hearing Officer. Chuck Pennel[2], Assessor of Taney County, (Respondent) did not file a Response.
We AFFIRM the Decision of the Hearing Officer. Segments of the Hearing Officer’s Decision may have been incorporated into our Order without further reference.
FINDINGS OF FACT AND PROCEDURAL HISTORY
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 valued the property at $5,674,687 as commercial property as of January 1, 2019. The BOE valued the property at $5,674,687 as commercial property as of January 1, 2019. Complainant filed a timely appeal with the STC, and the case proceeded to an evidentiary hearing. At the evidentiary hearing, Complainant presented evidence in the form of exhibits and testimony of Bagus Priambodo (Complainant’s Appraiser). Respondent presented no evidence but cross examined Complainant’s Appraiser.
The evidence established that Complainant purchased the subject property on July 3, 2018, for $6,400,000. Complainant’s Appraiser utilized the sales comparison approach and the income approach to value the subject property.
Under the sales comparison approach, Complainant’s Appraiser utilized four comparable sales, making adjustments for differences between the subject property and the comparables, concluding a TVM of $6,430,000. Complainant’s Appraiser concluded a business enterprise value (BEV) of $2,235,000 and a value of the furniture, fixtures, and equipment (FF&E) of $810,000.
Under the income approach, Complainant’s Appraiser calculated pro forma income and expenses due to the 2018 mid-year sale of the subject property. 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. Although Complainant’s Appraiser stated he utilized the Rushmore Method under the income approach, Complainant’s Appraiser deducted BEV of $2,235,000 and FF&E of $810,000 to conclude a TVM of $2,995,000 for the real property component of the subject property. Complainant’s Appraiser’s report stated that the “consistent utilization of the Rushmore method by appraisers and its widespread acceptance by the courts therefore signifies its established position as the leading methodology in the realm of hotel property tax valuation.” (Complainant’s Ex. A, p. 34)
The Hearing Officer subsequently issued the Decision containing Findings of Fact and Conclusions of Law finding that Complainant presented substantial and persuasive evidence rebutting the presumption of correctness of the BOE’s determination of value and finding the TVM of the subject property was $5,193,555 as of January 1, 2019.
Complainant filed a timely Application for Review. The STC thereafter issued its Order allowing the Application for Review and granting Respondent time to file a response. Respondent did not file a response.
CONCLUSIONS OF LAW
Complainant’s Point on Review
In its sole point on review, Complainant asserts the Hearing Officer’s Decision is erroneous because, while setting aside the BOE’s decision and reducing the BOE’s determination of TVM, the Hearing Officer did not explicitly state the “miscalculations” of Complainant’s Appraiser and chose a valuation methodology not in evidence as the basis for determining the TVM of the subject property. Complainant specifically argues that once the Hearing Officer found the presumption of validity of the assessment was overcome, he should have weighed the evidence of value in light of existing law as applied to the evidence adduced and should not have implemented the Rushmore Method to determine the value of the property because the method had not been introduced into evidence.
Standard of Review
A party subject to a decision and order of a hearing officer of the STC may file an application requesting the case be reviewed by the STC. Section 138.432. The STC may then summarily allow or deny the request. Section 138.432. The STC may affirm, modify, reverse, set aside, deny, or remand to the hearing officer the decision and order of the hearing officer on the basis of the evidence previously submitted or based on additional evidence taken before the STC. Section 138.432.
The Commission reviews the hearing officer’s decision and order de novo. Lebanon Properties I v. North, 66 S.W.3d 765, 770 (Mo. App. 2002); Union Electric Company, d/b/a Ameren Missouri, v. Estes, 2020 WL 3867672 (Mo. St. Tax Com., July 2, 2020); AT&T Mobility, LLC, v. Beverly Alden, Assessor, Caldwell County, Missouri, et al., 2020 WL 3867819 (Mo. St. Tax Com., July 2, 2020). “The extent of that review extends to credibility as well as questions of fact.” Lebanon Properties I, 66 S.W.3d at 770. The Commission “is free to consider all pertinent facts and estimates and give them such weight as reasonably they may be deemed entitled to.” St. Louis Cty. v. State Tax Comm’n, 515 S.W.2d 446, 450 (Mo. 1974).
Commission’s Ruling
For the reasons that follow, the Commission finds Complainant’s arguments to be unpersuasive. The Commission, having reviewed the whole record and having considered the Hearing Officer’s Decision and the Application for Review of Complainant, affirms the Hearing Officer’s Decision.
There is a presumption of validity, good faith and correctness of assessment by the BOE. 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 assessment is erroneous and what assessment should have been placed on the property. Id.
The taxpayer in a STC appeal bears the burden of proof. The taxpayer is the moving party seeking affirmative relief. Therefore, Complainant bears the burden of proving by substantial and persuasive evidence the vital elements of the case, i.e., the assessment was “unlawful, unfair, improper, arbitrary, or capricious.” See, 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); Industrial Development Authority of Kansas City v. State Tax Commission of Missouri, 804 S.W.2d 387, 392 (Mo. App. W.D. 1991). 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).
The Hearing Officer is the fact finder, and 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 is not bound by any single formula, rule or method in determining true value in money, but 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, 515 S.W.2d at 450; Chicago, Burlington & Quincy Railroad Company, 436 S.W.2d at 650.
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 he may deem it entitled to when viewed in connection with all other circumstances. The Hearing Officer is not bound by the opinions of experts who testify on the issue of reasonable value, but may believe all or none of the expert’s testimony and accept it in part or reject it in part. St. Louis County v. Boatmen’s Trust Co., 857 S.W.2d 453, 457 (Mo. App. E.D. 1993); Vincent by Vincent v. Johnson, 833 S.W.2d 859, 865 (Mo. 1992); Beardsley v. Beardsley, 819 S.W.2d 400, 403 (Mo. App. 1991); Curnow v. Sloan, 625 S.W.2d 605, 607 (Mo. banc 1981).
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, at 615 (Mo. App. W.D. 2000); Hermel, 564 S.W.2d at 896; 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., 854 S.W.2d at 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. Div. 2 1974).
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.
Here, Complainant’s point on review is without merit.
First, the STC has the discretion to determine the appropriate methodology to value property in a given case. The STC has long recognized the Rushmore Method under the income approach for the valuation of hotel properties. The 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 Rushmore methodology has been the leading standard for valuation of hotels for over 20 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.
In the Decision, the Hearing Officer found that Complainant’s Appraiser had stated he utilized the Rushmore Method but made an error in calculation. The evidence in the record supports this finding. The Hearing Officer, in his discretion to accept or reject all, none, or some of the expert witness’ testimony, accepted all of the pro forma numbers calculated by Complainant’s Appraiser but rejected his final calculation. For illustration, the Hearing Officer inserted the pro forma numbers into two recognized formulas for calculating TVM of the real property component using the Rushmore Method. The formulas deducted the business component of the hotel and the FF&E of the hotel. In contrast, Complainant’s Appraiser calculated and subtracted BEV, $2,235,000, from his opinion of the value of the going concern, $6,000,000, in addition to subtracting FF&E, $810,000. To arrive at BEV, Complainant’s Appraiser “averaged the capitalized management fee and the net decrease in revenue for a branded versus non-branded hotel in the local market as supported by the rent comparables” and subtracted that amount from “total revenue.” Complainant’s Appraiser’s calculation did not follow a recognized formula under the Rushmore method, as illustrated by the Hearing Officer, and effectively was a “miscalculation” of the pro forma numbers.
Second, contrary to the argument in Complainant’s Application for Review, the evidence in the record reveals the Rushmore Method under the income approach was entered into evidence. According to Complainant’s Appraiser’s report, the Rushmore Method was discussed and purportedly used to value the subject property.
The taxpayer in a STC appeal bears the burden of proof. The taxpayer is the moving party seeking affirmative relief. Therefore, in these appeals, Complainant had the burden of proving that the BOE’s determination of value was erroneous. The Hearing Officer found that Complainant presented substantial and persuasive evidence rebutting the presumption of correctness of the BOE’s determination of value and finding the TVM of the subject property was $5,193,555, with a commercial assessed value of $1,661,938, as of January 1, 2019. The record supports the Hearing Officer’s findings. The Commission finds that a reasonable mind could have conscientiously reached the same result as the Hearing Officer based on a review of the entire record. Hermel, 564 S.W.2d at 895-96; Black v. Lombardi, 970 S.W.2d 378 (Mo. App. E.D. 1998). The Hearing Officer did not err in setting aside the BOE’s determination of value and in applying the Rushmore Method under the income approach to Complainant’s Appraiser’s pro forma income and expenses to determine the correct TVM of the subject property.
ORDER
The Decision of the Hearing Officer is AFFIRMED. The Decision of the Hearing Officer, including the findings of fact and conclusions of law therein, is 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 within 30 days of the mailing date set forth in the Certificate of Service for this Order.
If judicial review of this Order 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.
If no judicial review is made within 30 days, this 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.
SO ORDERED October 8.2021
STATE TAX COMMISSION OF MISSOURI
Gary Romine, Chairman
Victor Callahan, Commissioner
Will Kraus, Commissioner
Certificate of Service
I certify that copy of the foregoing has been sent electronically or mailed postage prepaid on October 8th, 2021, to: Complainant(s) and/or Counsel for Complainant(s), County Assessor and/or Counsel for Respondent County Collector.
Elaina Mejia
Legal Coordinator
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[3]
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.[4]
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[5]
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
[2] The appeal was filed while Mr. Pennel was the officeholder. The current Assessor of Taney County is Susan Chapman.
[3] 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.
[4] 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.
[5] The Hearing Officer heard the appeal and drafted this Decision and Order prior to his departure from employment with the STC.