SUNLINE BRANDS,	)
	)
Complainant,	)
	)
v.	)		Appeal Number 99-20269
	)
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 $3,582,347, assessed value of $1,192,922.

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

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

Case heard by Hearing Officer, Aimee L. Smashey.

Decision rendered by the Commission.

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-AL4921450). The Respondent determined an appraised value of $6,104,730 (assessed value of $2,034,910, as machinery, tools and appliances). Complainant presented evidence to support its opinion of value of $3,582,247 as the fair market value of the subject property. A hearing was conducted on December 5, 2000, at the St. Louis City Hall, St. Louis, Missouri. Parties were permitted to file Proposed Findings of Fact and Conclusions of Law and Briefs on the issue of highest and best use.

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

Complainant's Evidence

Complainant prefiled and offered into evidence the following exhibits:

Exhibit A, Appraisal Report of Allen D. Bealmear, ASA, CEA;

Exhibit B, Written Direct Testimony of Allen D. Bealmear, ASA, CEA;

Exhibit C, Comparable Data Sheet for a Bag Filler;

Exhibit D, Comparable Data Sheet for a Tablet Machine;

Exhibit F, Auction Monitoring Questionnaire Form.

Mr. Bealmear presented his opinion of value for the subject property of $3,582,247. The Hearing Officer received these exhibits into evidence.

Respondent's Evidence

Respondent pre-filed and offered into evidence the following exhibits:

Exhibit 1, Complainant's 1999 Manufacturer's Property Declaration;

Exhibit 2, Facsimile transmission from Schmidt to David P. Amrozwicz, dated 6-23-99;

Exhibit 3, Copy of fixed asset listing;

Exhibit 4, Facsimile transmission from Schmidt to David P. Amrozwicz, dated "6-23-99, refaxed 12-6-99";

Exhibit 5, Responsive correspondence and attachments from Ann Whittaker, Sansone Co., dated 12-8-99;

Exhibit 6, Complainant's 1999 Manufacturer's Tax Bill;

Exhibit 7, Complainant's 1999 Appeal Letter to the Board;

Exhibit 8, Complainant's 1999 Protest Letter;

Exhibit 9, Complainant's Alternative Cost Less Depreciation Schedule presented to the Board;

Exhibit 10, 1999 Board Decision Letter;

Exhibit 11, 1999 Manufacturer's Site Inspection Form;

Exhibit 12, Blank 1999 Manufacturers' Property Declaration Form;

Exhibit 13, Letter from R. Randy Turley to Thomas Nash, dated August 6, 1992;

Exhibit 14, Direct Testimony of David G. Schmidt.

Mr. Schmidt presented his opinion of value for the subject property of $6,104,730. Exhibits 1, 3, 5, 7 - 12, and 14 were received into the record by the Hearing Officer.

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 personal property which is the subject of Appeal No. 99-20269, Personal Property Account No. 99-AL4921450, consists of machinery, tools, and appliances. The items of property include but are not limited to: tablet machines, tablet presses, filling lines and equipment, mixing and blending equipment, conveyors and handling equipment. Exhibit B, p. 7.

3. There was no evidence in this case that the subject personal property is configured as an assembly or production line.

4. 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 (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.

5. The items of machinery and equipment are sold individually in the market place. They have various uses other than the uses in which they are currently being utilized. Exhibit B, p. 9. 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 $3,582,347 as of January 1, 1999.

8. Complainant's evidence was sufficient to rebut the presumption of correct assessment by the Board.

9. There was insufficient evidence to establish that Respondent's mass appraisal valuation for the subject personal property was reflective of the market value of the subject property 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

Complainant has the burden to present market value evidence. In order to prevail, Complainant's evidence must be substantial and persuasive. Industrial Development Authority of Kansas City v. State Tax Commission, 804 S.W.2d 387, 392 (Mo. App. WD 1991). Cupples Hesse Corp. v. State Tax Commission, 329 S.W.2d 696, 701-02 (Mo. 1959). Substantial evidence can be defined as such relevant evidence as a reasonable mind might accept as adequate to support a conclusion. See, Cupples-Hesse 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).

DECISION

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 items of machinery, tools and equipment as it sits operational on the premises.

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 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).

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 "in place" 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 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, 582,347 for the subject machinery and equipment as of January 1, 1999.

As part of his appraisal, he traveled to the site and inspected the property. Complainant's Exhibit B at 6 - 7. He testified that he performed his appraisal using a fair market value concept of value since that was the concept requested (Tr. 6 - 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." Complainant's Exhibit A at 9. The 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) commencing on July 17 to July 21, 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.

Complainant's Exhibit A at 7 - 8 (emphasis in original). Complainant's appraiser indicated that he and his associate appraisers made attempts to discover any sale that might possibly be used to make adjustments to market value inclusive of sales of "in place" machinery and equipment (Tr. 26). Complainant's appraiser judged that the subject property was standard machinery and equipment and was not specialized (Tr. 15). It was the type of machinery that is regularly traded in the used equipment market (Tr. 17). On that basis he appraised the property as if it were individual pieces of machinery and equipment ready and available for sale in the used equipment market and, relying primarily on the sales comparison approach, concluded a market value of $3,582,347.

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 "in place" 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 for the property as installed "in place", then the appraisal should reflect the extent of the investigation and the results. If there is a market for the property "in place" as well as in the secondary market, then the appraiser should value the property in the market that would produce the highest return.

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 machinery and equipment;

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.

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 $1,192,922.

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 April 30, 2001.

STATE TAX COMMISSION OF MISSOURI

Bruce E. Davis, Commissioner

Sam D. Leake, Commissioner