LINCOLN INDUSTRIAL,	)
	)
Complainant,	)
	)
v.	)		Appeal Number  99-20264
	)
GREGORY DALY,	)
LICENSE COLLECTOR,	)
ST. LOUIS CITY, MISSOURI,	)
	)
Respondent.	)

HOLDING

Decision of the St. Louis City Merchants' and Manufacturers' Board of Equalization sustaining the assessment made by the License Collector, SET ASIDE, Commission finds true value in money for the subject property for tax year 1999 to be $3,352,490, assessed value of $1,117,497.

Complainant appeared by Counsel, Thomas L. Caradonna, St. Louis, Missouri.

Respondent appeared by Counsel, Mark J. O'Toole, Assistant City Counselor.

Case heard by Chief Hearing Officer, W. B. Tichenor.

Case reassigned to Hearing Officer, Aimee L. Smashey.

Commission enters Decision and Order.

ISSUE

The issue in this appeal is: What was the true value in money as of January 1, 1999, of Complainant's machinery, tools and appliances located in St. Louis City?

SUMMARY

Complainant appeals the decision of the St. Louis City Board of Merchants' and Manufacturers' Tax Equalization (Board) which sustained the valuation of the subject property (Account Number 99-AL4917430). The Respondent determined an appraised value of $6,435,615 (assessed value of $2,145,205, as machinery, tools and appliances). Complainant presented evidence to support its opinion of value of $3,352,490 as the fair market value of the subject property. A hearing was conducted on September 26, 2000, at the St. Louis City Hall, St. Louis, Missouri.

The Commission having considered all of the competent evidence upon the whole record enters the following Decision and Order.

Complainant's Evidence

Complainant offered into evidence the appraisal report (Exhibit A) and written direct testimony (Exhibit B) of Allen D. Bealmear, ASA, CEA, President of MB Valuation Services. Both exhibits were receive into evidence. Mr. Bealmear was cross-examined by Respondent's Counsel and his testimony under cross-examination constitutes part of the record in this appeal. Mr. Bealmer presented his opinion of value for the subject property of $3,352,490. The Chief Hearing Officer received these exhibits into evidence.

Respondent's Evidence

Respondent pre-filed and exchanged the following exhibits:

Exhibit 1 1999 Property Declaration.

Exhibit 2 1999 Manufacturers' Tax Bill.

Exhibit 3 Letter dated 11/29/99 appealing assessment change.

Exhibit 4 Letter dated 12/22/99 protesting payment of taxes.

Exhibit 5 1999 Alternative Cost Less Depreciation Schedule.

Exhibit 6 Letter dated, 3/2/00 from Board, rejecting appeal.

Exhibit 7 Letter dated, 5/25/00 from Board correcting 3/2 letter.

Exhibit 8 Site Audit Report, 4/28/99.

Exhibit 9 1998 Manufacturers' Property Declaration with attachments, 1997 Additions, Reclass 1998 Return and 1997 Retirements.

Exhibit 10 1999 Manufacturers' Property Declaration Form.

Exhibit 11 Letter dated, 8/6/92 to License Collector from STC General Counsel.

Exhibit 12 Written Direct Testimony of David G.F. Schmidt, Auditor for Respondent.

Upon motion of Complainant, the Chief Hearing Officer excluded said exhibits from evidence and received them at hearing as an offer of proof. Complainant expressly declined cross-examination in the offer of proof. The Commission finds that Respondent's Exhibits 1, 3 - 10, and 12 are relevant and admissible and should be considered in the decision.

FINDINGS OF FACT

1. Jurisdiction over this appeal is proper. Complainants timely appealed to the State Tax Commission from the decision of the St. Louis City Merchants' and Manufacturers' Tax Equalization Board.

2.The subject property consists of more than 1,736 individual items of machinery, tools and equipment. The machinery, tools and equipment are identified by the Respondent's account number 99-AL4917430 for tax year 1999. The property is located at 4010 Goodfellow Blvd., St. Louis, Missouri. These individual items of property make up and constitute the manufacturing operation of Complainant. Exhibit A, pp. 1 - 102. Complainant's appraiser valued more than 1,720 of the items of property relying on comparative sales data and 16 of the items relying on a discounted cost analysis or replacement cost new, less depreciation. Exhibit A, pp. viii, x -xii ; Exhibit B, P. 13, Line 15 - P. 15, Line 1. The items valued under the cost approach represent less than 1% of the total number of items valued and less than 1% ($22,350) of the total true value in money of the items of subject property. Exhibit A, pp. 1 - 102 .

3. A market value appraisal inherently requires a highest and best use analysis. A highest and best use analysis is the mechanism in an appraisal that zeroes in on (1) the use of the property that will produce the highest return in an exchange; and (2) whether there is sufficient demand to make such an exchange probable. This analysis shows the appraiser what to appraise it as, and therefore, how to approach the cost, sales comparison, and income approaches.

4. The subject equipment was predominantly standard metal fabricating machines.

5. Such equipment is regularly traded in the used machinery and equipment market.

6. Complainant's appraisal primarily relied upon the selling prices of comparable machinery and equipment from the used machinery and equipment market. Complainant's evidence provided the best indication of the worth of the subject property in the open market.

7. The cumulative market value of Complainant's machinery, tools and appliances located in St. Louis City was $3,352,490 as of January 1, 1999.

Jurisdiction

The Commission has jurisdiction to hear this appeal and correct any assessment which is shown to be unlawful, unfair, arbitrary or capricious. Article X, section 14, Mo. Const. of 1945; Sections 138.430, 138.431, RSMo.

Board of Equalization Presumption

There is a presumption of validity, good faith and correctness of assessment by the St. Louis City Merchants' and Manufacturers' Tax Equalization Board. 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).

Standard for Valuation

Section 137.115, RSMo 1994, 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. Mo. Const. Art X, Section 4(b) (1945, amended 1982); 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). It is the fair market value of the subject property on the valuation date. Hermel, supra, at 897.

Market Value

"Market value" is defined as "...[t]he most probable price which a property would bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby:

a. buyer and seller are typically motivated;

b. both parties are well informed or well advised, and acting in what they consider their best interests;

c. a reasonable time is allowed for exposure in the open market;

d. payment is made in terms of cash in United States dollars or in terms of financial arrangements comparable thereto; and

e. the price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale."

Federal Register, vol. 55, no. 163, August 22, 1990, pages 34228 and 34229; also quoted in the Definitions section of the Uniform Standards of Professional Appraisal Practice, 1996 ed.

Complainant's Burden of Proof

In order to prevail, Complainant must present an opinion of market value and substantial and persuasive evidence that the proposed value is indicative of the market value of the subject property on January 1, 1999. Hermel, supra, at 897. Substantial evidence can be defined as such relevant evidence as a reasonable mind might accept as adequate to support a conclusion. See, Cupples-Hesse Corporation v. State Tax Commission, 329 S.W.2d 696, 702 (Mo. 1959). 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).

Market Value

In the present appeal, the parties dispute the specific market that would have sufficient demand and result in the highest value for the subject property. Complainant's appraisal presumes a typical sale of the property as individual pieces of machinery ready and available for sale. Respondent's value presumes continued use and estimates the depreciated value of the assembly lines as installed and in operation.

Missouri law requires that property be valued at its market value for property tax assessment purposes. (See, Conclusions of Law, Standard for Value and Market Value). In light of the nature of the dispute between the parties it is worth reviewing terms other than market value which impact upon this appeal.

"Value in exchange" or "exchange value" is be defined as "[t]he value of a commodity in terms of money to persons generally, as distinguished from use value to a specific person." (The Dictionary of Real Estate Appraisal, Third Edition, Appraisal Institute, 1993, at 125.) "Value in use" or "use value" is defined as "the value a specific property has for a specific use" (Ibid, at 383) and "the value of property which reflects a value to a specific user, recognizing the extent to which the property contributes to the personal requirements of the owner." (The Appraisal of Personal Property, American Society of Appraisers, 1994 at 2).

Exchange & Use Values

An exchange value is an objective value determined by transactions between buyers and sellers in the open market. A use value is a subjective value of an owner, user, or potential owner based solely upon his or her personal needs for the property. By definition then, market value is the value determined by the exchange of property between an informed seller and an informed buyer after exposure in the open market and not a subjective opinion of some individual or entity. However, there is a distinction between a value in use to a specific user and a value recognized by a group of informed potential buyers that a property has for a specific use. The latter should be fully considered under a market value appraisal. Further, if there is sufficient demand for the property for the use to which it is being put by the owner, exchange value can be equivalent to the use value to the owner. The market value standard does not require appraisers to discard transactions or market demand for assembled machinery and equipment just because the market finds the property valuable for the same use that it is being put to by the owner. Such evidence should be fully considered in a market value appraisal.

Highest and Best Use

Inherent in a market value standard is the necessity for a highest and best use analysis because the standard requires a well-informed potential buyer and a well-informed seller each acting in his or her best interests. While there may be several markets for the property, a well-informed seller looking out for his or her best interests will chose to sell in the market that produces the highest value. In contrast, there may be few markets for the property and a well-informed buyer will not pay more for the property than the amount it will command in a market with sufficient demand. A highest and best use analysis is the mechanism in an appraisal that zeroes in on (1) the use of the property that will produce the highest return in an exchange; and (2) whether there is sufficient demand to make such an exchange probable. This analysis shows the appraiser what to appraise the property as, and therefore, how to approach the cost, sales comparison, and income approaches.

Complainant's Approach to Value

Complainant offered the appraisal report and testimony of Mr. Allen D. Bealmear, a machinery and equipment appraiser. Mr. Bealmear's appraisal and testimony indicates a fair market value of $3,352,490 for the subject machinery and equipment as of January 1, 1999. He inspected the machinery and equipment at the Complainant's facility in the city of St. Louis. Exhibit B, p. 7, lines 9 - 15. He testified that he performed his appraisal using a fair market value concept of value since that was the concept requested. Exhibit B, p. 8, line 7 - p. 9, line 7. He defines "fair market value" as "[t]he estimated amount expressed in terms of money that may reasonably be expected for an item of property between a willing buyer and a willing seller with equity to both, neither under compulsion to buy or sell and both fully aware of all relevant facts." Exhibit A, p. ix. He further clarified his concept of value by indicating that it is synonymous with a value in exchange and varies from other concepts of value as follows:

Q: How does fair market value in exchange differ from other concepts of value?

A: Fair market value in exchange does not make any assumptions of removal, forced liquidation, nor does it give added value for cost of installation.

Q: Give us an example of how fair market value in exchange differs from other concepts of value.

A: Fair market value in exchange doesn't make any assumptions of installation as in fair market value installed nor does it say "in use."

Q: In this case, did you value each individual piece of property rather than the property as a whole?

A: Yes.

Q: And can the subject property that you valued be sold individually in the market?

A: Yes.

Q: And, in fact, did you find for most of the property comparable sales in the market of this particular type of property?

A: Yes.

Q: Does any of the property that you valued for this case have any special or unique characteristics which would require you to value the property as a whole rather than individually?

A: No.

Exhibit B, p. 8, line 22 - p. 9, line 23.

His appraisal sets forth the procedures used in estimating the value.

1. We performed a field examination to physically inspect the subject personal property (FFM&E) on or about June 5, 2000. As an adjunct to that inspection, an in-depth analysis was conducted to determine the Fair Market Value as of January 1, 1999, of any previously inspected assets as well as acquisitions since that time. Additionally, any transfers that occurred after the inspection date have been identified and relocated within the appraisal report code structure. Both the field examination and in-depth analysis was performed by Certified Appraiser(s) knowledgeable in the valuation of personal property (FFM&E).

2. We identified market adjustments to arrive at Fair Market Value, including but not limited to: comparable sales when available and an evaluation of potential purchasers.

3. We conducted a comprehensive analysis of the subject personal property (FFM&E) composition, including an analysis of all pertinent factors pertaining to the values as of the valuation date of January 1, 1999.

Exhibit A, pp. vii - viii. Complainant's appraiser judged that the subject property was, on the whole, standard metal fabricating machinery. It was the type of machinery that is regularly traded in the used equipment market. On that basis he appraised it as if it were individual pieces of machinery and equipment available for sale and, relying primarily on the sales comparison approach, concluded a market value of $3,352,490.

Respondent's Approach to Value

Respondent prepared his appraisal of the subject property by examining the Complainant's 1999 Property Declaration and accompanying property lists, reviewing the field notes of staff persons who performed site inspections, and comparing declarations from previous years. Respondent then used the original cost less depreciation at a rate of 10% per year down to a floor of 30% for property acquired 7 years prior to the tax date.

Conclusion

The Commission has the duty to evaluate the evidence presented to determine the sufficiency and persuasiveness of the evidence in establishing market value. Both parties need to present better substantiation for their conclusions about whether the subject personal property would likely sell as assembled at the subject location or as individual pieces of machinery and equipment in the used equipment market. If the research reveals that there is no market, then the appraisal should reflect the extent of the investigation and the results.

Having reviewed the evidence, the Commission concludes that Complainant's evidence was sufficient to rebut the presumption in favor of the St. Louis City Merchants' and Manufacturers' Tax Equalization Board. While it certainly could have been stronger with a more complete highest and best use analysis, Complainant's evidence was the most persuasive evidence on the record. It was persuasive because:

1. The equipment on the whole was standard metal fabricating machines;

2. Such equipment is regularly traded in the used machinery and equipment market;

3. Complainant's appraisal primarily relied upon the selling prices of comparable machinery and equipment from the used machinery and equipment market.

On the whole, Complainant's evidence provided the best indication of the worth of the subject property in the open market. Respondent relied on a cost methodology without showing how or why this methodology provides a good indication of market value. The more marketplace indicators are used in a cost methodology, the better the methodology is at projecting a market value. An effective way to use market data in a cost methodology is by using market-based depreciation studies as support for the depreciation calculation. Thorough and timely depreciation studies analyzing used equipment sales would give good indications of all forms of depreciation and obsolescence in addition to analyzing the length of time it takes operators to write-off such equipment as scrap.

Deficiencies of Appraisals

The quality of evidence presented by both parties suffered from various deficiencies. Appraisal reports for personal property should contain "A narrative explanation of the approach(es) to value used which is sufficiently specific for all other parties to reconstruct the approach(es) used and which includes the reasons for its (their) use." 12 CSR 30-3.065(2). Both parties would be well served to remember that a party does not meet its burden of proof if evidence on any essential element of its case leaves the Commission "in the nebulous twilight of speculation, conjecture and surmise." Rossman v. G.F.C. Corp. of Missouri, 596 S.W.2d 469, 472 (Mo. App. 1980).

Complainant's Appraiser

Complainant's appraiser should have incorporated specific illustration of his adjustments, both for his sales comparison approach and his discounted cost analysis. While the Commission rule is not mandatory, it put the Complainant on notice of what the Commission considers to be important to substantiate proposed property valuation. It is not unreasonable or overly burdensome to require that an appraiser demonstrate the appropriateness of the selection of comparable sales and the accuracy of their adjustments.

It would have been most appropriate for Complainant's appraiser by way of illustration to have given concrete examples of how values were calculated under the sales comparison analysis for various items of machinery. It is not necessary that each and every piece of equipment valued be addressed. However, several examples which would demonstrate the actual data relied upon and the actual adjustments made as representative of the methodology would have been helpful. With regard to the discounted cost analysis, here again, by way of example, the methodology needs to be illustrated. The appraiser would have strengthened his presentation by providing basic data to demonstrate how he arrived at the cost new and the depreciation for the machinery on some of the items of property under appeal. In this manner, the Commission (or Hearing Officer hearing the appeal) would have a complete understanding of the underlying methodology.

The highest and best use analysis utilized by Complainant's appraiser can be significantly improved by showing that he had researched the market relative to sales of assembled lines of machinery, tools and appliances. The appraiser would then be in a position to bring before the Commission information relating to the extent of such a market and whether a determination of value can reasonably be made from such sources. This would provide a basis upon which the Commission could determine with a greater degree of certainty that the market for resale supports a highest and best use sale as presented by Complainant's appraiser.

Respondent's Valuation

It is not prudent for Respondent to continue to limit his evidence to the production of depreciation schedules. The presumption in favor of the Board is not sufficient to overcome market data demonstrating that the value for items of property is different than that suggested by depreciation tables. Such is the case in the appeal. Complainant's market data rebuts the indicated value determined under the depreciation table. Furthermore, Respondent's evidence demonstrates that the Board presumption is based simply upon the depreciation methodology employed by Respondent. (See, Exhibit 11, Testimony of David G. F. Schmidt, Q & A, 34 - 42.)

Depreciation tables are only good indicators of market behavior when they are periodically checked against actual market behavior and when this test demonstrates that, as a whole, the tables reflect market reaction.

It would also be error for Respondent to assert his valuations are correct because he values and depreciates all manufacturing property at the same rate. Nothing within the concept of uniformity contemplates that overvaluation or undervaluation can be excused because all taxpayers within the class are treated equally. Where law requires that property be valued based upon its market value, any standard other than market value will not survive a well documented challenge.

Additionally, it would be an error for any assessing officer to assert that depreciation schedules are proof of value, merely because he or she has documentation from the State Tax Commission which approves the form that taxpayers use to report personal/manufacturing property. Each assessing officer has the burden to periodically examine his or her depreciation schedules to insure that those schedules continue to adequately represent market value.

Finally, Respondent's reliance on a depreciation table completely ignores any development of a highest and best use analysis, supported by market data, to demonstrate that a sale of the subject property as assembled is a reasonable sale and how that value, in fact, would support a depreciation table. Respondent's witness provided no highest and best use analysis.

ORDER

The assessed valuation for the subject property as determined by the License Collector and affirmed by the Merchants' and Manufacturers' Board of Equalization Board for St. Louis City for the subject tax day is SET ASIDE. The assessed valuation for the subject machinery, tools and appliances for the 1999 tax year is hereby set at $1,117,497.

Judicial review of this Order may be had in the manner provided in Sections 138.470 and 536.100 to 536.140, RSMo within thirty days of the date of the mailing of this Order.

If no petition for judicial review of this Order is filed within thirty (30) days of the mailing of this order, this decision and order is deemed final and the License Collector of St. Louis City as well as the collectors of all affected political subdivisions therein, shall disburse the protested taxes presently in an escrow account in accord with the decision on the underlying assessment in this appeal. If any protested taxes have been disbursed pursuant to Section 139.031(8), RSMo, either party may apply to the circuit court having jurisdiction of the cause for disposition of the protested taxes held by the taxing authority.

Any Finding of Fact which is a Conclusion of Law or Decision shall be so deemed. Any Decision which is a Finding of Fact or Conclusion of Law shall be so deemed.

SO ORDERED January 29, 2001.

STATE TAX COMMISSION OF MISSOURI

Bruce E. Davis, Commissioner

Sam D. Leake, Commissioner