P.D. George(99) v. Daly

P.D. GEORGE, )

)

Complainant, )

)

v. ) Appeal Number 99-20262

)

GREGORY DALY, )

LICENSE COLLECCTOR, )

ST. LOUIS CITY, MISSOURI, )

)

Respondent. )

DECISION AND ORDER

HOLDING

Decision of the St. Louis City Board of Merchants' and Manufacturers' Tax Equalization increasing the assessed value from that filed by taxpayer, SET ASIDE, Hearing Officer finds true value in money for the subject property for tax year 1999 to be $2,227,675, assessed value of $741,815.

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

Respondent appeared by Counsel, Mark J. O'Toole and Patricia L. Wendling, Assistant City Counselors.

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

ISSUES

The Commission takes this appeal to determine the true value in money for the subject property on January 1, 1999.

SUMMARY

Complainant appeals the decision of the St. Louis City Board of Merchants' and Manufacturers' Tax Equalization (Board) which increased the valuation of the subject property. The taxpayer had reported acquisition costs in the amount of $9,058,972, for an assessed value of $1,408,656. The Board increased the assessed value to $1,840,315. A hearing was conducted on September 19, 2000, at the St. Louis City Hall, St. Louis, Missouri. Respondent filed his post-hearing Brief on October 30, 2000. Complainant filed its post-hearing Brief on November 30, 2000.

The Hearing Officer, having considered all of the competent evidence upon the whole record, and arguments advanced in Briefs, 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 of MB Valuations Services, Inc.

The exhibits were received into evidence.

Mr. Bealmear gave his opinion of the true value in money (value in exchange) for the subject machinery, tools and appliances at $2,227,675.

Respondent's Evidence

Respondent offered into evidence the following exhibits.

Exhibit 1 - Complainant's 1999 Manufacturer's Property Declaration with list (AL 4921750).

Exhibit 2 - Board of Merchants' and Manufacturers' Tax Equalization of the City of St. Louis "Assessment Change Notice" dated November 18, 1999 regarding Complainant's 1999 Manufacturer's Tax (AL 4921750) with cover letter.

Exhibit 3 - Letter dated November 29, 1999, from Joseph C. Sansone Co. to Board to appeal "Assessment Change Notice for P. D. George Company."

Exhibit 4 - Letter dated March 2, 2000, from Board to Complainant's counsel approving the acquisition cost and assessed value as set forth in the Assessment Change Notice (99-AL8010454).

Exhibit 5 - Complainant's 1999 Manufacturers' Tax Bill (1999-AL8010454).

Exhibit 6 - Complainant's letter to License Collector accompanying Complainant's 1999 Manufacturer's Tax payment received by License Collector December 29, 1999.

Exhibit 7 - 1999 Manufacturers' Tax Worksheet (2 pages) for Complainant dated 11/15/99 by David Schmidt.

Exhibit 8 - Respondent's Site Inspection Form and Site Audit Report for Complainant dated April 29, 1999.

Exhibit 9 - Complainant's 1997 Manufacturers' Property Declaration with list (AL4432830).

Exhibit 10 - Complainant's 1998 Manufacturers Property Declaration with list (AL4683630).

Exhibit 11 - Complainant's Alternative Cost Less Depreciation Schedule.

Exhibit 12 - Respondent's Daily Document Record (1999) for Complainant.

Exhibit 13 - Respondent's 1999 Manufacturers' Property Declaration Form - copy of front side of top page and back side of last page.

Exhibit 14 - Letter dated August 6, 1992, to License Collector Thomas R. Nash from R. Randal Turley, Counsel, State Tax Commission of Missouri regarding Manufacturer's License Application.

Exhibit 15 - An Update Appraisal of certain assets of P. D. George Company, 5200 North Second Street, St. Louis Missouri as of January 1, 1999.

Exhibit 16 - Written Direct Testimony of Gerald L. Huether, ASA.

Exhibit 17 - Written Direct Testimony of David G. F. Schmidt, License Collector Auditor of the City of St. Louis.

Exhibits 1 through 14 and Exhibit 17 were stricken from evidence and received only as an offer of proof, pursuant to Order, dated 8/8/00, issued by the Chief Hearing Officer.

Exhibits 15 and 16 were received into evidence.

Mr Huether gave his opinion of the fair market value, installed for the subject machinery, tools and appliances to be $4,849,047.

FINDINGS OF FACT

1. The subject property is located at Complainant's facility, 5200 North 2nd Street, St. Louis City, Missouri. It is identified by the Board by account number: 99-AL8010454. The property consists of 447 items of property as categorized by Complainant's appraiser. These items of property consist of more than 2,100 individual tools, machinery and appliances.

More specifically, the subject property includes; pumps, hoppers, hand trucks, scales, parts washers, stencil cutters, tanks, dispersers, mixers, tubs, forklifts, flowmeters, cabinets, sand mixing pots, mills, filtration units and systems, filling stations, hoists, dust collectors, carts, drill presses, lathes, grinders, sanders, polishers, ladders, fume hoods, reactors, boilers, fans, containers, control panels, computers, paper dispensers, drum turners, air compressors, air dryers, blowers, battery chargers, jacks, bandsaws, welders, conduit benders, totes and various other tools and equipment. There is nothing that is special or unique about the various tools, machines and appliances which make up the subject property. They are bought, sold, employed and utilized in a variety of ways, facilities and manufacturing processes other than that used by the Complainant. The subject tools, machinery and appliances are used in the manufacturing of coatings, varnishes and resins for electrical and electronic components and devices. Exhibit A, pp. 19-67; Exhibit A to Exhibit 15, pp. 1-42.

2. Personal property is valued based upon its true value in money. True value in money is value in exchange, not value in use or value installed. Value in use/installed may be, in a given case, the value in exchange is there is market data to so establish. There was no such market data presented in this appeal.

3. Respondent has not demonstrated that his proposed value installed is synonymous, or representative, of value in exchange. There is no discernable difference between Respondent's "value installed" and "value in use." P. D. George v. Daly, STC Appeal No. 97-20316, Order Granting Application for Review and Modifying the Hearing Officer Decisions, August 10, 2000.

4. There is no market support for Respondent's valuation methodology. Tr. 19, Line 20 - Tr. 24, Line 1.

5. The subject machinery, tools and appliances are bought and sold individually in the market (in the ordinary course of trade). There is nothing special or unique about the items of machinery, tools and appliances that would require them to be valued as a whole as assembled for use by Complainant. Exhibit B, p. 9, Line 23 - p. 10, Line 8; Exhibit 15, p. 15; Tr. 19, Lines 2-19.

6. Complainant's valuation methodology is predominately based upon actual sales of like or similar machinery, tools and appliances. Exhibit A, pp. 19-67. The reasonably probable, appropriately supported, and most financially feasible use of this property would be for sale in its separate components. P. D. George, 8/10/00, supra.

7. Complainant met its burden of proof to provide substantial and persuasive evidence of market value in exchange for tax year 1999.

8. The market value for the subject property on January 1, 1999, was $2,227,675, assessed value of $741,815 ($2,227,675 x .333 = $741,815.78).

9. Respondent failed to meet his burden of proof to provide substantial and persuasive evidence of market value for tax year 1999.

CONCLUSIONS OF LAW

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. 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. Section 138.431.4, RSMo.

Board Presumption

There is a procedural presumption of validity, good faith and correctness of assessment by the 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). There is no presumption in favor of the License Collector. The procedural presumptions of validity, good faith and correctness of the Board are rebutted when the Complainant comes forward with substantial evidence. However, even when the presumptions are rebutted, the Complainant, as the moving party, has the burden of proof on the facts. Cupples-Hesse Corporation v. STC, 329 S.W.2d 696, 701-702 (Mo. 1959); P. D. George, 8/10/00, supra.

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. 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. True value in money is value in exchange, not value in use. Stephen & Stephen Properties, Inc. v. STC, 499 S.W.2d 798, 801-802 (Mo. 1973); Equitable Life Assurance v. Morton, 852 S.W.2d 376, 380 (Mo. 1993). The market value standard is the only acceptable starting point for an opinion of value. The only recognized methodologies for calculating true value in money are (1) the sales comparison approach; (2) the cost approach; and (3) the income approach. Quincy Soybean Co., Inc. v. Lowe, 773 S.W.2d 503, (App. E.D. 1989). Value installed is not the appropriate valuation standard unless it can also be shown to be value in exchange. P. D. George v. Daly, supra.

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).

Weight to be Given Evidence

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 v. STC, 515 S.W.2d 446, 450 (Mo. 1974); Chicago, Burlington & Quincy Railroad, supra.

Trier of Fact

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).

Opinion Testimony by Experts

If specialized knowledge will assist the trier of fact to understand the evidence or to determine a fact in issue, a witness qualified as an expert on that subject, by knowledge, skill, experience, training, or education, may testify thereto.

The facts or data upon which an expert bases an opinion or inference may be those perceived by or made known to the expert at or before the hearing and must be of a type reasonably relied upon by experts in the field in forming opinions or inferences upon the subject and must be otherwise reliable, the facts or data need not be admissible in evidence. Section 490.065, RSMo; Courtroom Handbook on Missouri Evidence, Wm. A. Schroeder, Sections 702-505, pp. 325-350; Wulfing v. Kansas City Southern Industries, Inc., 842 S.W.2d 133 (Mo. App. W.D. 1992)

DECISION

Complainant's Valuation Methodology

Complainant's appraiser, Mr. Alan D. Bealmear, valued each item of property either by using the cost approach or market (sales) comparison approach. He personally visited the site where the property is located and personally observed each and every item of personal property. Exhibit A, p. 7-8; Exhibit B, p. 6, Line 15 - p. 7, Line 20. Bealmear valued the property under the fair market value in exchange concept. He understood this was the concept of value required under Missouri law. The concept of value was set forth by Bealmear as - The 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. 9; Exhibit B, p. 8, Line 1 - p. 9, Line 18.

The Bealmear appraisal explains the way each item of property is set forth in the report as to the location, quantity, description, condition, the value approach utilized and the fair market value of each item. Exhibit A, pp. 13-17; Exhibit B, p. 10, Line 17 - p. 12, Line 19. Bealmear determined the highest and best use for each item of property to be the purpose for which the item was designed by the manufacturer. Exhibit A, p. 8; Exhibit B, p. 12, Line 20 - p. 13, Line 9.

Bealmear's cost approach was replacement cost new less physical, functional, and economic obsolescence. His sales comparison approach was based on market sales of similar or like items. He did not develop a income approach to value, as he deemed it unreliable. He primarily relied on the sales comparison approach in forming his opinion of value. Exhibit A, pp. 10-12; Exhibit B, p. 13, Line 10 - p. 14, Line 20. Sales were adjusted upward or downward depending on the type of sale which was being used in the comparable analysis. Exhibit A, pp. 10-11; Exhibit B, p. 14, Line 21 - p. 16, p. 13.

Bealmear used a variety of data sources in performing his appraisal. Bealmear's firm maintains a data bank that is continuously maintained showing actual sales that occur all of the United States. The sale are from various types, including auction, dealers' selling prices, asking prices and new cost. This data bank has been maintained since 1984, with thousand of items contained therein. This data bank is relied upon by other appraisers. The sales in the data bank are verified by observation of actual sales. The sources relied upon and used in the data bank are those that are generally accepted by the appraisal community as reliable. Exhibit A, p. 18; Exhibit B, p. 16, Line 14 - p. 18, Line 18.

Bealmear's opinion of value was based upon a reasonable degree of appraisal standards certainty and in conformity with the uniform standards of professional appraisal practices. Exhibit B, p. 19, Line 22 - p. 20, Line 12.

Respondent's Valuation Methodology

Respondent's appraiser, Mr. Gerald L. Huether, valued the property under the fair market value installed concept. The concept of value was set forth by Huether as - The estimated gross amount, expressed in terms of money, which could typically be realized from a sale of the installed property, between a willing buyer and a willing seller with equity to both, for possible use at the same location, neither being under any compulsion to buy or sell and both being fully aware of all of the relevant facts. Exhibit 15, p 1, Cover Letter & p. 14; Exhibit 16, Q & A 39 & 40.

Huether's methodology for the appraisal of the subject property was to adjust his 1997 replacement cost new up by one (1%) percent and then to apply depreciation at the same level as he had for his 1997 valuation. The underlying methodology to arrive at replacement cost new for both the 1997 and 1999 appraisals was identical. Essentially Huether arrived at a cost new for each item of machinery, tools and appliances. He then added an estimated cost for freight and handling, erection, engineering and construction and contractor's fee. Huether did not add any amount for sales tax for his 1999 valuation. He did add $697,107 for an item of 53,000 linear feet of steel process piping ranging in size from 1/4 inch to 6 inches in diameter and 21,000 linear feet of stainless steel piping ranging in size from 1/4 inch to 8 inches in diameter. He also added $398,540 for an item of process electrical, consisting of approximately 46,00 linear feet of conduit ranging in size from 1/4 inch to 1 inch in diameter, safety switches, motor control centers, power panels and transformers. Tr. 17, Line 14 - Tr. 19, Line 1; Exhibit 15, pp. 20-40; Exhibit 7 to Exhibit 15, pp. 30 - 37; Exhibit B to Exhibit 15, pp. 1 - 42.

Hearing Officer Determination of Value

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 and use for the intended purpose for which each was designed. Respondent's value presumes continued use of the assembled individual pieces of machinery 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 Evidence Substantial & Persuasive

The evidence on this record presented by Complainant is substantial and persuasive to establish the value as proposed by Complainant's appraiser. Mr. Bealmear correctly recognizes that the highest and best use for any given piece of machinery, tool or appliance is to be used for the purpose for which it was designed. Each of the items appraised were so being used. Tanks were being used as tanks. Pumps were being used as pumps. Mixers, scales, hoppers, hand trucks and all the other hundreds of individual pieces of equipment in Complainant's facility were being used for the purpose for which they were designed. It may be that market evidence would establish that the highest and best use of the subject items of machinery, tools and appliances in an assembled state would produce a different value for the subject property. However, that evidence does not exist in this record so that the Hearing officer can make such a determination. Respondent did not present such evidence, nor did Respondent provide evidence from the market which would challenge and rebut the highest and best use valuation utilized by Complainant's expert.

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.

Complainant's appraiser was not valuing the subject machinery, tools and equipment as for scrap or salvage, which would be the only alternative use, other than that for which each item was designed. Nor was Bealmear valuing the individual pieces of equipment to simply sit in a box. His valuation, whether under the discounted cost new or sales comparison approach, recognized the each item of equipment would be continued to be used in a manufacturing process and facility. Data from the market, appropriately adjusted for the type of sale upon which Bealmear was drawing his data, demonstrates what the individual items of machinery, tools and equipment can be purchased for in the open market.

Bealmear did not present an analysis relative to sales of assembled and operating facilities utilizing similar collections of machinery and equipment. However, this is not fatal to his analysis and appraisal. Respondent's cross-examination failed to establish that Bealmear had overlooked any such sales upon which a determination of value could be made. In light of Respondent's own appraiser's admission that he could find no such sales from which to perform an analysis, it is obvious upon this record, no such sales exist. Tr. 19, Line 20 - Tr. 24, Line 1.

The concept of value in exchange as employed by Complainant's appraiser presents a methodology which is proper, fair, not arbitrary, not capricious and is lawful under Missouri statutes, Commission regulations and case law. Section 138.430, RSMo; P. D. George, 8/10/00, supra.

In the present appeal and on the existing record, valuing what a knowledgeable buyer and seller would give in exchange for the individual items of property and totaling each value avoids conjecture and speculation which is required if one is to attempt to value the facility, the process line or the assemblage of tools, machines and appliances in place for their continued use. Complainant's expert established that sales data is available on hundreds of the subject items. This sales data establishes the prices at which the various and sundry items of machinery, tools and appliances are selling. From such data, a clear indication of the value for the property under appeal can be developed. Any attempt to add on some additional value because these pieces of personal property are assembled in the Complainant's manufacturing facility results in a valuation whose only foundation is conjecture and speculation, absent sound market data to support such additional value.

In another case, where market data might address sales of assembled lines of machinery, tools and appliances, such conjecture and speculation could be avoided. In a case where such evidence of sales of in place lines of equipment was presented an appropriate analysis could be made between such sales and the sales of individual items of equipment to properly compare how two such markets reflect value. Accordingly, a party relying on sales data for individual items of equipment would want to research the market relative to sales data on assembled lines of similiar equipment. The persuasiveness of two such market based approaches would depend upon the evidence presented in such an appeal. Since in the present case, no alternative market data was presented or developed, the Hearing Officer need not enter into conjecture and speculation as to what if any difference in value might be shown from such evidence.

Respondent's Methodology and Evidence Not Persuasive

The Commission recognized in P. D. George, 8/10/00, supra, that there may be instances in which value installed and value in exchange would be synonymous. Such instances must be based upon market data. In other words, the party advocating that the value installed is the value in exchange must come forth with substantial and persuasive data from the market to establish that the value proposed is indeed supported in the market when an assembled facility of the same or similar machinery, tools and appliances is sold.

Respondent was the party in this appeal advocating the standard of value installed. This is a non-conforming standard. The burden was upon Respondent to demonstrate by market data that the value installed standard, as developed in the Huether appraisal, produced a value in exchange that reflected the market. Respondent failed to so demonstrate that his value installed is synonymous to value in exchange. P. D. George, 8/10/00, supra.

Respondent's appraiser failed to come forward with a single market example of a facility that had sold in its entirety, with the real property. Likewise, the appraiser did not present any market data relative to the sale of the manufacturing machinery, tools and appliances selling in their entirety, as assembled in place.

Mr. Huether's valuation assumed that in the hypothetical sale of the subject personal property installed that the real property would not be sold with the manufacturing equipment. He asserted that instances happened quite often where companies don't want to take on the purchase of real property but they purchase the personal property (manufacturing equipment) and leased the real property. However, no data or analysis of any such sales were presented in the appraisal report to support this claim. Even the prior sale of the subject manufacturing process was not such a sale of only manufacturing equipment. But was a sale of real and personal property and intangibles. It was the sale of a company. Tr. 38, Line 1 - Tr. 39, Line 14.

Respondent's Argument

Respondent argues that "The proper method to determine the true value in money of machinery and equipment for the Manufacturer's Tax assessment is to value the assets as part of an entire facility, which includes all normal direct and indirect costs of the machinery and equipment installed." Respondent's Brief pp. 3-7. Respondent's entire case hinges on this position.

The obvious flaw in this argument is that it misses the ultimate issue, i.e., true value in exchange, supported by the necessary market data. In order to use this argument, Respondent needed to demonstrate there was, in fact, a market for this "installed" property, generally. If Respondent had made this demonstration, we might be inclined to find "that a buyer will pay more for a piece of equipment that is installed upon the premises, if the equipment is to be continued to be used on the premises." See BCB v. Morton, 52 STC Proceedings & Decisions 309, 317 (taxpayer's appraiser advocated use of market value installed).

In this case, unlike BCB, there is no reliable evidence to support a finding that the most likely way this personal property would sell is "as installed" and the taxpayer's appraiser has not advocated the use of this methodology. Respondent's arguments that the plant had sold in the past and that the company has a bright future, are not persuasive.

Persuasive facts relative to the items of machinery, tools and appliances under appeal are:

(a) this personal property is both common and old;

(b) this is not a special purpose facility;

(c) the individual pieces of property have various uses;

(d) the property can be sold individually and similar property is sold individually;

(e) Respondent's appraiser could not find any reliable market sales of intact processing lines which sold without the sale of the underlying property; and

(f) common sense dictates that a purchaser is not going to pay more for a piece of property from Complainant than what he could purchase it for in the market.

Property should be valued according to its highest and best use, and any highest and best use analysis must have its basis in market behavior. The reasonably probable, appropriately supported, and most financially feasible use of this property would be for sale in its separate components, as developed by the evidence in this record. In this regard, the Hearing Officer is not constrained to limit the market to only those purchasers who might also want to purchase the real property, or a whole processing line, unless the evidence would support such a limitation. It does not. Respondent has failed to present any evidence demonstrating that his methodology represents market behavior. Complainant's highest and best use position clearly recognizes that each item of property is going to continue to be used for the purpose for which it was designed, whether in the subject facility or some other facility which would manufacture some other different line of products.

BCB v. Morton

Respondent seeks support for his position from the BCB Decision. The hearing officer in BCB specifically stated, "in a given appeal the evidence may be such that an assumption (may be made) that the most likely future use of the equipment might not be in its present use, but that it is just as likely that the equipment would not sell as a part of the whole, but would simply sell in a liquidation. This, of course, would result in a different method of valuation . . .The circumstances of each case will dictate the exact method of valuation employed." (p. 318).

Even though the appraiser in BCB characterized his approach as "market value - installed," it was not the same approach which Respondent advocates in this case. In BCB, the appraiser actually went to the market to find the value based upon sales of similar items of personal property. "The appraiser researched the market to determine what the individual items of equipment were selling for and to this he added an amount for the depreciated elements of freight and installation of the equipment." (p. 317). Here, Respondent's appraiser used a cost approach to calculate replacement cost new. Less than 10% of his value considered market sales. The appraiser then added sales tax, freight, installation and other service charges and, finally, he depreciated the whole lot at 73%. Although Respondent's appraiser has utilized the same label found in BCB, he has not utilized the same methodology.

Bussman Div. of Cooper Ind. v. State Tax Commission

In the alternative, Respondent could have demonstrated that the component parts of the processing line would never be sold in isolation. At which time, we would be justified in finding that those component parts should not be valued in isolation. See, Bussman Div. of Cooper Ind. v. State Tax Comm'n, 802 S.W.2d 543 (Mo App. 1991). However, Respondent has not made such a showing and, thus, has failed to demonstrate that Bussman applies in this case. His reliance on Bussman is misplaced and in error. The evidence presented by Complainant establishes that the overwhelming majority of the subject items do in fact sell in the market as individual items.

Assemblage

Respondent urges that consideration be given to Boise Cascade Corp. v. Dept. of Revenue, 12 Or. Tax 263 (Or. T.C. 1991) and other sister states' decisions in favor of Respondent's proposition that the subject property should be valued as installed. Commission decisions, on occasion, considered sister states' decisions addressing assemblage value, transmissible value, and going-concern value. Simon Property Group, L. P. v. Robert Boley, 51 STC Proceedings & Decisions, 474. However, the validity of assemblage cannot be separated from the concept of value in exchange. Assemblage is meaningless if it is not recognized in the market. Respondent has failed to demonstrate that the market would recognize any additional value from the assemblage of Complainant's personal property. Without market data to establish that in this instance value in exchange and value installed are one and the same, decisions from sister jurisdictions have no weight. Respondent failed to provide such market data and accordingly failed to establish that his appraiser's calculations to arrive at his opinion of value installed is what the market would dictate as value in exchange.

Respondent's Excluded Exhibits

The Hearing Officer reviewed the various exhibits excluded from evidence in this appeal at the time of ruling on Complainant's objections and motion to strike. In preparing this Decision and Order, the Hearing Officer once again reviewed the same as an offer of proof. However, there is nothing in said exhibits which establishes any market basis for any conclusion of value for the subject property. Said exhibits have no probative value to establish the market value of the subject items of property.

Conclusion

In view of the foregoing, the market value for the subject property on January 1, 1999, was $2,227,675, assessed value of $741,815.

ORDER

The assessed valuation for the subject property as determined by the St. Louis City Board of Merchants' and Manufacturers' Tax Equalization for the subject tax day is SET ASIDE.

The assessed value for the subject property for tax year 1999 is set at $741,815.

A party may file with the Commission an application for review of this decision within thirty (30) days of the mailing of such decision. The application shall contain specific grounds upon which it is claimed the decision is erroneous. Failure to state specific facts or law upon which the appeal is based will result in summary denial. Section 138.432, RSMo 1994.

If an application for review of this decision is made to the Commission, any protested taxes presently in an escrow account in accordance with this appeal shall be held pending the final decision of the Commission. If no application for review is received by the Commission within thirty (30) days, this decision and order is deemed final and the 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 or all 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 February 2, 2001.

STATE TAX COMMISSION OF MISSOURI

W. B. Tichenor

Chief Hearing Officer

ORDER

DENYING APPLICATION FOR REVIEW

OF HEARING OFFICER DECISION

On February 2, 2001, Chief Hearing Officer, W. B. Tichenor, entered his Decision and Order (Decision) setting aside the assessment by the St. Louis City Board of Merchants' and Manufacturers' Tax Equalization and finding value for the subject property.

Respondent's Grounds for Review

Respondent timely filed his Application for Review of the Decision. Complainant was given (Order, dated March 7, 2001) until and including April 9, 2001, to file any response. Counsel for Complainant filed with the Commission on April 19, 2001, Motion for Leave to File Response to Application for Review and Complainant's Response to Application for Review. The Commission grants leave to file Response and receives Complainant's Response as part of this record.

The grounds stated in the Application for Review were:

1. The Hearing Officer erred by placing the burden of proof upon the party advocating the standard of value installed.

2. The Hearing Officer erred in not finding that Complainant's expert had not investigated as to whether there exists sufficient demand to make an exchange of the subject facility as a process or production line probable.

3. The Hearing Officer erred in his Decision because Complainant's market data relied on to determine market value in the instant appeal is flawed because, by Complainant's own admission, forty percent of it comes from auction or forced liquidation sales.

4. The Hearing Officer erred in his Decision because Respondent has presented substantial and persuasive evidence that there exists sufficient demand to make an exchange of the subject facility as a process or production line probable.

5. The Hearing Officer erred by striking and excluding Respondent's Exhibits 1 through 14 and Exhibit 17.

Standard Upon Review

The Commission will not lightly interfere with the Hearing Officer's Decision and substitute its judgment on the credibility of witnesses and weight to be given the evidence for that of the Hearing Officer as the trier of fact. Black v. Lombardi, supra; Lowe v. Lombardi, 957 S.W.2d 808 (Mo. App. W.D. 1997); Forms World, Inc. v. Labor and Industrial Relations Com'n, 935 S.W.2d 680 (Mo. App. W.D. 1996); Evangelical Retirement Homes v. STC, 669 S.W.2d 548 (Mo. 1984); Pulitzer Pub. Co. v. Labor and Indus. Relations Commission, 596 S.W.2d 413 (Mo. 1980); St. Louis County v. STC, 562 S.W.2d 334 (Mo. 1978); St. Louis County v. STC, 406 S.W.2d 644 (Mo. 1966).

DECISION

The Commission finds Respondent's points to be without merit. In rendering his Decision the Hearing Officer followed the Commission Decision issued in P. D. George v. Daly, STC No. 97-20316 (August 10, 2000); affirmed Daly v. P. D. George Co., Cause No. 004-2046, Circuit Court City of St. Louis (April 24, 2001). The methodologies employed by Complainant's expert and Respondent's expert in the present case and the 1997 appeal were the same.

A reasonable mind could have conscientiously reached the result which the Hearing Officer reached on each of the points raised. There is competent and substantial evidence to establish a sufficient foundation for the Hearing Officer's conclusions and findings relative to each of Respondent's points. The Commission finds no basis to support a conclusion that the Hearing Officer acted in an arbitrary or capricious manner or abused his discretion as the trier of fact and concluder of law in this appeal. Hermel, Inc. v. STC, 564 S.W.2d 888 (Mo. 1978); Black v. Lombardi, 970 S.W.2d 378 (Mo. App. E.D. 1998); Holt v. Clarke, 965 S.W.2d 241 (Mo. App. W.D. 1998); Smith v. Morton, 890 S.W.2d 403 (Mo. App. E.D. 1995). Phelps v. Metropolitan St. Louis Sewer Dist., 598 S.W.2d 163 (Mo. App. E.D. 1980).

The Commission will briefly address each of Respondent's points.

Burden of Proof on Value Installed

The Hearing Officer did not err by placing the burden of proof upon the Respondent as the party advocating the standard of value installed. The Hearing Officer correctly recognized the Board presumption and the Complainant's burden to rebut the presumption. Decision, p. 7, Conclusions of Law - Board Presumption; p. 8, Complainant's Burden of Proof. The Hearing Officer found that Complainant had met its burden of proof resulting in the Board presumption being rebutted. Decision, p. 6, Findings of Fact 8. Complainant was under no burden to prove the standard of value being advocated by Respondent.

The moving party has the burden of proof on the facts. Cupples-Hesse Corporation v. STC, 329 S.W.2d 696, 701-702 (MO. 1959); P. D. George v. Daly, STC No. 97-20316 (August 10, 2000). With regards to the standard of value installed advocated by Respondent's expert, Respondent was the moving party, therefore, Respondent had the burden of proof on the facts to establish that standard. Complainant met its burden of proof. Respondent did not.

Demand for Exchange of Installed Manufacturing Equipment

The evidence from both Complainant's expert and Respondent's expert as to the factors that touch on the market demand for the machinery and equipment being valued are not essentially in conflict. Respondent's expert, under cross-examination, admitted his opinion of value based upon a sale of the assembled, in place/in use, subject property is not supported by market sales of comparable lines of property. Tr. 20, Line 24 - Tr. 21, Line 1. The testimony of Respondent's expert established there was no market data available which would indicate whether the subject property would likely change hands as an entire process line. Tr. 33, Lines 14 - 16. Had evidence from the market to establish the sale of assembled machinery, tools and equipment been presented, then there would have been a basis to demonstrate that the value in exchange (assembled/in place) is the value in place/in use and vice versa. In such a case the result might very well have been different. However, in the absence of any such market evidence, it is nothing more than conjecture and speculation as to what a value in exchange assembled might or might not be.

The Hearing Officer did not commit error by not requiring Complainant's expert to present evidence for Respondent's theory of value, when the testimony of Respondent's own expert established that no such market data was available.

Complainant's Market Data

The Commission recognizes that simply because there are forced liquidation sales contained within the data base, this does not established that Complainant's expert relied solely upon such transactions. Nor does it establish that he did not appropriately adjust for auction sales and any forced liquidation sales. In point of fact, Complainant's expert testified under cross-examination that he adjusted the sales utilized to account for the type of sales transaction. Furthermore, the testimony of the expert was that any sale is valid to use as a comparable if proper adjustment is made to compensate for the different type of sale and level of trade. Tr. 13, Lines 3-17. Adjustments to comparable sales, whether in real property or personal property appraisals, are what brings the comparable to reflect market value and make the appropriate comparison to the subject. Complainant's valuation and data were not flawed in this regard.

There is competent and substantial evidence to establish a sufficient foundation for the Findings which the Hearing Officer made relative to Complainant meetings its burden of proof on valuation. The Hearing Officer did not err in his reliance on Complainant's evidence of valuation.

Demand to Make Exchange of Subject Facility Probable

Respondent asserts he presented substantial and persuasive evidence to establish the market demand for an exchange of the subject facility probable. That evidence consisted of nothing more than Respondent's expert having some understanding that at some time in the past there was a sale of the Complainant's entire company. Nothing further was presented as to this sale or any sales of similar assembled machinery and equipment.

The Hearing Officer did not find this to be substantial and persuasive evidence to establish that as of January 1, 1999, a demand for the sale of the assembled items of machinery, tools and equipment, with or without the Complainant's real property and business, existed. The Hearing Officer did not act in an arbitrary or capricious manner or abuse his discretion as the trier of fact and concluder of law in this regard.

The single prior sale of the company (not the assembled machinery and equipment), at an unknown date, does not establish that there was sufficient demand for sale and purchase of the property under appeal as a process or production line as of January 1, 1999. Nor does the prior sale of the company establish that the value which might be received from a sale and purchase of the assembled machinery and equipment would be any greater than the value which might be received from sales and purchases of the individual items of machinery and equipment.

Ruling on Objections and Motion to Strike

Respondent finally asserts that the Hearing Officer erred by striking and excluding Respondent=s Exhibits 1 through 14 and Exhibit 17. The Commission does not agree.

The issue before the Hearing Officer in the appeal was the true value in money for the subject machinery, tools and equipment. The Hearing Officer did not find the proffered exhibits to be relevant on that issue. The Hearing Officer as the trier of fact and concluder of law has broad discretion in the admission and exclusion of evidence. Kelly by Kelly v. Jackson, 798 S.W.2d 699, 704 (Mo. banc 1990).

Respondent's claim that the exclusion of these exhibits was reversible error is unsubstantiated by any developed argument or any case citation in support thereof. Error in the admission of testimony is reversible error only if it is prejudicial or materially affects the merits of the case. State v. McClendon, 895 S.W.2d 249, 252-53 (Mo. App. 1995); Dunn v. St. Louis-San Francisco Ry. Co., 621 S.W.2d 245, 252 (Mo. banc 1981); Lewis v. Wahl, 842 S.W.2d 82, 85 (Mo. banc 1992); Section 512.160.2, RSMo; Rule 84.13(b). In the present instance, Respondent did not rely on the excluded exhibits to establish value. Respondent did not demonstrate in any fashion how the exhibits were relevant to establishing value. The Hearing Officer's exclusion did not constitute reversible error, nor an abuse of discretion in his ruling on the Complainant's Objections and Motion to Strike.

Respondent finally asserts under this point that the exclusion of the exhibits constituted a denial of due process to Respondent, but fails to demonstrate how the exclusion of the non-relevant exhibits denied the Respondent a fair hearing. Respondent was given complete opportunity to present evidence upon value (Exhibits 15 & 16). The evidentiary hearing was conducted at a meaningful time and in a meaningful manner for both parties. The Hearing Officer's ruling to exclude the exhibits did not deny Respondent a fair hearing or the opportunity to be heard. There was no denial of due process.

ORDER

The Commission upon review of the record and Decision in this appeal, finds no grounds upon which the Decision of the Hearing Officer should be reversed or modified. Accordingly, the Decision is affirmed.

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.

SO ORDERED July 10, 2001.

STATE TAX COMMISSION OF MISSOURI

Sam D. Leake, Chairman

Bruce E. Davis, Commissioner

Jennifer Tidwell, Commissioner

P.D. GEORGE,	)
	)
Complainant,	)
	)
v.	)	Appeal Number 99-20262
	)
GREGORY DALY,	)
LICENSE COLLECCTOR,	)
ST. LOUIS CITY, MISSOURI,	)
	)
Respondent.	)