T.G. MISSOURI,	)
	)
Complainant,	)
	)
v.	)		Appeal Number 00-77001
	)
LARRY WHITE, ASSESSOR,	)
PERRY COUNTY, MISSOURI,	)
	)
Respondent.	)

DECISION AND ORDER

HOLDING

Decision of the Perry County Board of Equalization reducing the assessment made by the Assessor, SET ASIDE, Hearing Officer finds true value in money for the subject property for tax year 2000 to be $19,781,206, assessed value of $6,593,735.

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

Respondent appeared by Counsel, Thomas Hoeh, Prosecuting Attorney, Perry County, Missouri.

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, 2000.

SUMMARY

Complainant appeals the decision of the Perry County Board of Equalization (Board) which sustained the valuation of the subject property. The Respondent determined an appraised value of $65,110,740 (assessed value of $21,703,580, as personal property - furniture, machinery, tools, manufacturing and office equipment). The Board reduced the valuation to $59,555,370 (assessed value of $19,851,790).

A hearing was conducted on September 5, 2001, at the Perry County Courthouse, Perryville, Missouri. This appeal was consolidated for purposes of the evidentiary hearing with Solar Press, Inc. v. White, STC Appeal No. 00-77000, due to the fact that the experts in both cases and the methodology applied in each appeal for determining true value in money for the subject property was the same. Accordingly, testimony given by both experts, as it related to the general methodology employed, was applicable to both appeals, although given interrogation may have been referencing a specific item of property in a particular appeal. To the extent that interrogation on a specific valuation was illustrative of the general methodology employed, such interrogation is considered in both appeals in arriving at determinations and conclusions as to the strengths, weaknesses and persuasiveness of an appraiser's overall general methodology.

The Hearing Officer, 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. Exhibit C, a cost and sales comparison illustration of valuation referenced in the written direct testimony of Mr. Bealmear, was prefiled with Exhibit B. Exhibit D, copy of a paper on Development, Make-Up and Proper Use of Indexes, prepared by Richard D. Vishanoff, was presented at the evidentiary hearing. All exhibits were receive into evidence. Mr. Bealmear was cross-examined by Respondent's Counsel, and that testimony, as well as testimony in response to questions by the Hearing Officer in redirect examination and in rebuttal, constitute part of the record in this appeal. Mr. Richard D. Vishanoff, Chief Managing Editor, Valuation services with Marshall and Swift, testified in rebuttal. The testimony of Mr. Vishanoff constitutes part of the record in this appeal.

Mr. Bealmer presented his opinion of value for the property to be $19,781,206.

Respondent's Evidence

Respondent offered into evidence the following exhibits:

Exhibit 1 Appraisal Report of Roger Chantal, ASA, Chantal Appraisal Service.

Exhibit 2 Qualifications of Mr. Chantal.

Exhibit 3 Assessor's 2000 Valuation of Personal Property submitted by Complainant for 2000.

Exhibit 4 Assessed value of Personal Property Worksheet for 2000, calculated by Assessor's Office.

Exhibit 5 Letter to Muned Furutani from Larry White, Re: Personal Property Declaration for Complainant for 2000.

Exhibit 6 Personal Property Schedule of Assessed Value, Estimated Tax Schedule, and Depreciation Schedule developed by Complainant.

Exhibit 7 2000 BOE Appeal for Personal Property submitted by Complainant.

Exhibit 8 Notice of Action by BOE.

Exhibit 9 Letter to County Collector, dated December 22, 2000.

Exhibit 10 Copy of Asset List.

Exhibit 11 Written Direct Testimony of Mr. Chantal

All the exhibits were received into evidence. Mr. Chantal was cross-examined by Complainant's Counsel and his testimony under cross-examination, testimony in response to questions by the Hearing Officer and in redirect examination constitute part of the record in this appeal.

Mr. Chantal offered his opinion of value for the property to be $72,369,000.

FINDINGS OF FACT

1.     Jurisdiction over this appeal is proper. Complainant timely appealed to the State Tax Commission from the decision of the Perry County Board of Equalization.

2. The subject property consists of approximately 6,190 individual items of furniture, office machines and equipment, machinery, tools and manufacturing equipment, identified in 2,976 entries in Complainant's appraisal report. The property is identified by the Respondent's account number 077073 for tax year 2000. The property is located at 2200 Plattin Road, Perryville, Missouri. The individual items of property make up and constitute the manufacturing operation of Complainant. A complete listing of the items of property under appeal is found in Exhibit A, pp. 19-253.

3. Complainant's appraiser valued approximately 5,632 (90.99%) of the items of property relying on comparative sales data, and 558 (9.01%) of the items relying on a discounted cost analysis or replacement cost new, less depreciation method. Of the total value concluded by Complainant's appraiser for the subject property $14,998,671 or 75.83% was based on the sales comparison analysis and 24.17% or $4,782,535 was based on the cost approach. Exhibit A, pp.10-11, pp. 19-253; Exhibit B, p. 12, Line 16 - p. 18, Line 22; Exhibit C.

4. Complainant's appraiser valued the items of property based on the concept of fair market value - 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, pp. 3, 7, 9 & 10; Exhibit B, p. 6, Lines 16-23; p. 7, Line 25 - p. 9, Line 1. This is the appropriate concept of value to be applied in the valuation of the property. Respondent's appraiser also purports to have used this standard of value. Exhibit 1, p. 5; Tr. 28, Lines 9-11.

5. 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 if there is market data to so establish. There was no such market data presented in this appeal from which it could be established that value in use/installed was value in exchange.

6. Complainant's appraiser conducted a personal inspection and inventory of the items of property being valued and confirmed that all of the items valued were at the particular facility as of January 1, 2000. Exhibit A, p. 6-8; Exhibit B, p. 6, Line 24 - p. 7, Line 18; Tr. 7, Lines 13-15; Tr. 22, Lines 5-14. Respondent's appraiser performed an inspection of the facility, but did not make an asset inventory of the property being valued, as is the appropriate manner in which an appraisal of machinery and equipment should be prepared. Valuing Machinery and Equipment, Machinery and Technical Specialities Committee of the American Society of Appraisers, 2000, p. 215. Respondent's appraiser relied upon an asset list as his listing of items of property. Exhibit 1, pp. 12-87; Exhibit 10.

7. Complainant's appraiser performed his appraisal in conformity with the Principles of Appraisal Practice and Code of Ethics of the American Society of Appraisers, and in conformity with the applicable standards of the Uniform Standards of Professional Appraisal Practice (USPAP). Exhibit A, p. 4; Exhibit B, p.23, Lines 15-17 & p.24, Lines 1-6.

8. The concept of highest and best use was considered by Complainant's appraiser in his valuation of the subject property in accordance with Standard 7, Subsection 3(a) of USPAP. The subject items of furniture, machinery, tools and equipment were being utilized for the purpose designed by the manufacturer, and therefore were being utilized in the reasonably probable and legal use that is physically possible, appropriately supported and financially feasible, and resulted in the highest value in the appropriate marketplace. Exhibit A, pp. 4, & 8; Exhibit B, p. 11, Line 14 - p. 12 , Line 15. None of the items of machinery, tools and equipment have any special or unique characteristics which would require that they be valued as a unit or whole rather than individually. Exhibit B, p. 9, Lines 2-16.

9. The principle of substitution is that a prudent buyer will not pay more for a property than the cost of acquiring a substitute property of equivalent utility. The principle can be applied to either an individual asset or to an entire facility. The principle applies in either a cost, sales comparison or income approach. Valuing Machinery and Equipment, pp. 45, 115, supra; Appraising Machinery and Equipment, Machinery and Equipment Textbook Committee of the American Society of Appraisers, John Alico, Editor, 1989, p. 81.

10. Complainant's appraiser relied upon the MB Data Base in his appraisal. The MB Data Base is made up of a multitude of research data sources, including purchase price new from a manufacturer, dealers' asking and selling prices, auction sales and any other type of transaction which can be gathered. This data base is a large data resource computer program which has sales information posted to it daily of all kinds of equipment from the various sources. The database has the condition of items of sale machinery and equipment when it is known. The database identifies the type of sale, equipment being sold, date of sale, location of sale, and auctioneer from sale brochures on the various auctions. Information from the database can be sorted by categories of equipment type and model. Each equipment category has data posted which can then be retrieved for use in appraising such individual items of machinery and equipment. The sources utilized in the MB Data Base are sources that the appraiser is familiar with and that he has found to be reliable over his years of appraisal practice. The sources used in the data base are sources that are generally accepted by the appraisal community as reliable. Other appraisers use the MB Data Base as a resource in performing their appraisals. Exhibit A, p. 17; Exhibit B, p. 18, Line 23 - p. 22, Line 11.

11. Complainant's appraiser also utilized recognized pricing guides, sources and catalogues as research data sources. Contacts were made to manufacturers of various items of machinery and equipment being appraised. Exhibit A, p. 17.

12. Complainant's evidence was substantial and persuasive to rebut the presumption of correct assessment by the Board and to establish the true value in money of the subject property under appeal as of January 1, 2000, to be $19,781,206.

13. Respondent's evidence was not substantial and persuasive to rebut the presumption of correct assessment by the Board and to establish the true value in money of the subject property under appeal as of January 1, 2000, to be as proposed.

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 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).

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, Inc. v. State Tax Commission, 564 S.W.2d 888, 897 (Mo. banc 1978). True value in money is defined in terms of value in exchange and 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).

Complainant's Burden of Proof

In order to prevail, Complainant must present an opinion of market value and substantial and persuasive evidence the proposed value is indicative of the market value of the subject property on January 1, 2000. Hermel, Inc. v. State Tax Commission, 564 S.W.2d 888, 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).

Respondent's Burden of Proof

In an appeal where Respondent presents an opinion of value different from that determined by the Board, substantial and persuasive evidence must be presented to rebut the Board presumption and establish the value proposed. Hermel, supra.

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 Company v. STC, 436 S.W.2d 650 (Mo. 1968).

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. E.D. 1992).

DECISION

Although both appraisers valued the various items of property under what each identifies as the sales comparison and cost approaches, the exact procedures and methodologies employed by each appraiser are significantly different. The persuasiveness of each appraiser's methodology rests upon various factors which will be addressed in the discussion which follows. The procedures followed by Complainant's appraiser provide a sound basis for reliability and credibility. Respondent's appraiser developed a valuation which is plagued with various errors, defects and shortcomings which weigh against its reliability and credibility. Of the two valuations presented, Complainant's valuation possesses sufficient substantial and persuasive weight to rebut the presumption of correct assessment by the Board and to establish the value proposed. The valuation presented on behalf of the Respondent did not reach the level of substantial and persuasive evidence to establish value.

Complainant Proved Value

Complainant's evidence presented an opinion of value based on the concept of fair market value or value in exchange. This concept of value 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. This is the recognized standard under Missouri case law. Section 138.430, RSMo. A listing of recent cases following this standard can be found at the end of this decision (End Note - hereinafter cited as P. D. George et al).

Valuing what a knowledgeable buyer and seller would give in exchange for the individual items of property and totaling the values avoids conjecture and speculation. Complainant's appraisal clearly demonstrated that there is reliable sales data available on a great majority all of the subject items (5,632 out of 6,190 total items of property - 90.99.%). The sales data establishes the prices at which the various individual items of property are selling in the market. From such data, a clear indication of the value for the various pieces of machinery, tools and equipment can be developed.

Mr. Bealmear's opinion of value is based upon reliable and appropriate data. He correctly valued the property relying upon the value in exchange concept recognized under Missouri case law, statutes, Commission regulations and decisions. His appraisal methodology and resulting final opinion are based upon a reasonable degree of appraisal standards certainty. Therefore, Complainant has rebutted the presumption of correct assessment by the Board of Equalization and met its burden of proof to establish the true value in money for the subject property as proposed.

Sales Data

The data relied upon by Mr. Bealmear demonstrates that the market for the hundreds of pieces of machinery, tools and equipment that comprise the subject property consists of all types of sales transactions, direct and indirect (direct sale - sale to ultimate end user; indirect sale - sale to used equipment dealer). The fact that some sales, or even a large number of the sales relied upon, are auction sales, either consignment, orderly liquidation or forced liquidation, does not render such sales invalid for developing an opinion of value. Respondent's appraiser by his use of two sales reporting services utilized the same type of transactions. Such sales are not the same as forced sales for taxes or mortgage foreclosures in real property cases. The market world for items of machinery, tools and equipment consists of new equipment sales, reconditioned equipment sales, orderly liquidations, forced (bankruptcy) sales, excess equipment sales and auctions.

This diversity of types of transactions does not render use of data derived from such sales invalid or inappropriate. This market arena, with its mixed information base, is where real transactions occur each day. It is the responsibility of the appraiser when faced with an appraisal problem such as the present one, to explore and analyze this market arena to extract the most reliable data to utilize in his appraisal. It is the responsibility of the appraiser to make the appropriate upward or downward adjustments to such sales data to arrive at an opinion of value for the particular item of property being valued. Such adjustments are made in large part based on the experience which the individual appraiser is able to bring to bear in a given appraisal assignment.

Complainant's appraiser made appropriate adjustments for the various types of sales which were utilized in the appraisal relying upon his education, training and experience. Mr. Bealmear is a well trained and experienced appraiser having more than 28 years of experience in valuing machinery, tools and equipment. Furthermore, his firm is able to rely upon the vast experience of other appraisers (Karen Miles Milan, ASA, 15 years appraisal experience & H. W. Choate, ASA) and their education, training and experience, as well as a trained research staff which provides assistance in data collection and analysis. Exhibit A, pp. 262-264; Exhibit B, p. 7, Lines 11-18; p. 19, Line 7 - p. 20, Line 13; p. 21, Lines 5-12.

The staff of MB Valuation Services monitors sales of machinery and equipment by on-site attendance at the sale. Questionnaires are filled out regarding information relating to the number of attendants, number of active bidders, type of bidders (end users or used equipment dealers), conduct of auctioneers, handling of the crowd, and the weather. These are all factors which could affect the results of the sale. The information for sales is entered into the databank in order that relevant factors can be considered when adjustments are made to comparables. Exhibit B, p. 19, Line 7 - p. 20, Line 13; p. 21, Lines 5-12.

If there is another market arena where sales of the multitude of individual items which comprise the subject property in this appeal sell together in an assembled manner, then it would, of course, be appropriate for the appraiser to explore, investigate and analyze the sales which occur in that market. It would, in fact, be his responsibility to do so in order to arrive at an appropriate opinion of value. However, there is no evidence in this record of such a market.

In the absence of such evidence, it would amount to pure speculation and conjecture for either the appraiser or this Hearing Officer to attempt to arrive at a valuation of the subject property under such a hypothetical market condition. Accordingly, the evidence of sales brought forward by Mr. Bealmear is substantial and persuasive evidence as to what the hundreds of items of machinery, tools and equipment which make up the subject property are selling for in the only market for which evidence was presented

The experience and record of the Commission in addressing valuation of machinery, tools and equipment in more than twenty separate appeals (P. D. George, et al, infra) has clearly shown, without any contradictory evidence, that the auction market is a major component of the arena in which used machinery, tools and equipment are bought and sold throughout the United States. Nothing was presented in the present appeal which demonstrates in any way, shape or form that there is another market arena, level of trade for used machinery and equipment, from which Mr. Bealmear should have drawn sales data. The data base which is utilized by Mr. Bealmear in addition to information received from transactions at auctions also includes used equipment dealer's asking and selling prices.

Willing Seller/Willing Buyer and Machinery and Equipment Auctions

The definition of fair market value (true value in money - Section 137.115, RSMo) utilized by the experts for both parties in this appeal is 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. In other words, in attempting to value a given item of machinery, or even an assembled group of machinery and equipment, a hypothetical sale between a willing buyer and seller of the property being valued is assumed. In some minds, this translates to a prohibition against the use of any sales data which does not also involve a willing seller and a willing buyer, or, that per se any auction sale is inappropriate and cannot be used. Such a conclusion is in error.

In the field of real estate appraisal, appraisers do not rely upon tax sales as a comparable sale. In most instances, a mortgage foreclosure sale of real estate would not be utilized as a comparable sale. In both cases the seller is not considered to be a willing seller. In addition, however, there are other factors which weigh against using a tax or foreclosure sale in real estate appraisals. In a tax sale, all that is being sought is recovery of taxes owed, and the expenses of the sale. In a foreclosure sale, recovery of the outstanding debt and expenses of sale is what is being sought. In tax and foreclosure real estate sales, the exposure to the market is greatly limited, consisting of generally a legal notice in the local newspaper and posted at the courthouse. Furthermore, in real estate appraisal there is generally sufficient market data outside of tax and foreclosure sales from which sales data can be extracted.

In the realm of machinery and equipment auctions there are significant differences from real estate tax or foreclosure auctions. If a machinery and equipment auction involves a bankruptcy, the bankrupt owner is, of course, being forced to sell. However, the trustee in bankruptcy is under an obligation to protect creditors by obtaining the best price possible when assets are sold. The record in this appeal and in other similar cases (P. D. George, infra) which have come before the Commission, clearly and convincingly establishes that vast amounts of various machinery, tools and equipment used in a multitude of manufacturing operations and facilities are bought and sold on a continuing basis throughout the nation in auction sales. This is a recognized level of trade for used machinery and equipment which can be utilized in valuing machinery and equipment. Valuing Machinery and Equipment, Chapter 4 - Sales Comparison Approach, pp. 115-155; Exhibit B, p. 14, Lines 7-18; p. 20, Lines 14-19; Tr. 94, Line 24 - Tr. 95, Line 3.

The very nature of a machinery and equipment auction is for the entity conducting the auction to expose the items to be sold to as large a group of buyers as possible through the advertising of the sale. The auctioneer is motivated to obtain the highest sale price possible, since compensation to the auctioneer is based upon a percentage of sale price. This is the case whether the sale involves a forced liquidation or not. In other words, the auctioneer does not seek to get a lower price for sale items simply because there may be a forced liquidation.

In many states, there is a Deceptive Trade Practice Act which prohibits public offerings of machinery and equipment for sale without disclosing everything the seller knows about the property. For the most part, auctioneers and sellers know the equipment being sold and they are aware if there is anything wrong with it. Sellers at auctions disclose if a machine is only a partial machine, without certain components or whether it was considered scrap or in poor condition. Bidders are also aware of such conditions. They do not buy out of ignorance.

There is no evidence to even suggest that buyers at an auction will bid lower if it is a bankruptcy sale as opposed to a sale of excess machinery or a sale simply due to a plant closing. Basic reasoning establishes that bidding by potential buyers is not tied in any logical fashion to the seller's motivation or circumstances which brought about the sale. Buyers at an auction, like buyers in any other sales arena, seek to buy at the lowest price. Auctioneers, as the agent for the seller, are seeking the highest price. Competing buyers increase the sale price by bidding against each other.

Any sale, auction or otherwise, of a given piece of machinery is valid to use as a comparable sale for a like piece of machinery if proper adjustments are made. 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. There is no set formula for each type of adjustment which might be made to a sale price for a given piece of machinery. It is not possible nor practical to set up a sales grid for each item of machinery and equipment in which the subject item of machinery or equipment would be compared to 4, 6, 8 or a dozen like items of property and each one adjusted on the various possible points of comparability for machinery and equipment. (See, Valuing Machinery and Equipment, Elements of Comparability, pp. 120-122).

The adjustments which are required to be made are a product of the appraiser's training and experience. Mr. Bealmear made adjustments to bring the sales data to the fair market value standard. Exhibit B, p. 13, Lines 6-9; p. 14, Lines 19-23; p.17, Line 9 - p. 18, Line 22. Exhibit C provides an illustration as to the sales data which would be utilized by the appraiser in conducting his sales comparison valuation. The Bealmear appraisal would be strengthened if some sample illustrations as to the kinds of adjustments which are made during his valuation process were also provided for various items of machinery and equipment. However, the failure to include such sample illustrations is not defective to the appraisal possessing the requisite weight of substantial and persuasive evidence to establish value.

The credentials, testimony and other evidence on this record demonstrate that Mr. Bealmear is quite knowledgeable and experienced in the various elements of comparability which would need to be considered for making adjustments and conducting a proper appraisal. His testimony substantiated that in performing his appraisal he made relevant inquiries related to the subject items of machinery and equipment that are ordinarily and properly made. He had available, through his own research or that of his staff, essential and appropriate information relative to the sales used for comparison in the appraisal. In summary, it is reasonable to conclude that the Bealmear appraisal was conducted in such a manner as to be in accordance with the general frame work and guidelines one would expect for such an appraisal. Valuing Machinery and Equipment, supra, Chapter 4.

Sales Comparison Approach

The valuation of the subject property by Complainant's expert is in accordance with the principle of substitution for these particular assets. A well informed buyer will not pay more for items of property than the amount such property will command in a market with sufficient demand. Mr. Bealmear found sufficient sales to value nearly every single piece of machinery and equipment by the sales comparison approach. His appraisal demonstrates a market with sufficient demand for the vast majority of the various items of manufacturing property being valued in this appeal. The Bealmear illustrations (Exhibit C) show that he generally had four or more sales of items of machinery and equipment to use to arrive at an indicated value for each of the more than items of machinery and equipment valued under the sales comparison approach. The Hearing Officer concludes from the testimony of the expert that there were in all likelihood a larger number than 4 to 6 sales for many of the individual items, however, the appraiser selected those sales which were most like the subject item being valued. Exhibit B, p. 18, Lines 4-15.

The sales information (manufacturer of equipment, used dealers' asking and selling prices, auction sale results, catalogs, tabloids, newspapers and other sources) utilized by Mr. Bealmear demonstrates what informed buyers are paying for the various items of machinery and equipment. Exhibit B, p. 19, Lines 7-11; p. 20, Lines 3-19. One of the strengths of drawing from such sales data is that the appraiser is dealing with actual transactions for the purchase of like machinery, whether by an end user or a used equipment dealer for resale. Actual sales data provides a firm foundation from which the trained and experienced appraiser can make appropriate adjustments to arrive at an opinion of what price the item of property being valued would demand in an open and active market.

Cost Approach

In the instances in this appeal, where Complainant's expert was unable to find adequate sales of machinery and equipment, he arrived at an opinion of value using the cost approach. In developing his cost approach, Mr. Bealmear obtained the replacement cost new as of the effective date for the appraisal (valuation date - January 1, 2000) from the manufacturer of the particular item of machinery or equipment. If the appraiser was unable to obtain a replacement cost new from the manufacturer, he would attempt to determine the date of acquisition and purchase price and make appropriate adjustments for the difference in time between its original purchase and the valuation date. From the replacement cost new, either obtained from the manufacturer or calculated from original acquisition costs, deductions were made for physical, functional and economic obsolescence. Exhibit A, p. 10; Exhibit B, p. 13, Line 1 - p. 14, Line 1; p. 14, Line 24 - p. 17, Line 8.

The adjustment for physical depreciation is made based upon the actual inspection of each item of machinery and equipment and discussions with plant personnel, if necessary, regarding the physical condition. Functional depreciation can be anything such as a different model from which would be purchased new, difference in speed, capacity, type of controls, energy consumption, technological changes or any other factor which might be considered an obsolescence factor when compared to a new piece of equipment. Economic obsolescence is a deduction that is made for factors which affect the value of an item of machinery outside of the specific piece of property. It could include style of machine, demand for specific equipment or demand for the product which the machine produces, or other factors outside the given machine. The appraiser can contact the manufacturer to investigate demand for a given piece of equipment to determine economic obsolescence. It can also be calculated by looking at equipment of a similar type and comparing the market price for such equipment to the cost new to calculate economic obsolescence where physical and functional obsolescence are known. Information available to Mr. Bealmear through his data sources provides information from the market to assist in adjusting for the three types of obsolescence in performing his cost approach. Exhibit A, p. 17; Exhibit B, p. 16, Lines 4-21; p. 18 , Line 23 - p. 19, Line 6. The cost methodology employed by Mr. Bealmear for the items valued under this approach is within the parameters and guidelines for developing a cost approach as applicable in this appraisal problem generally recognized by the machinery and equipment appraisal community. Valuing Machinery and Equipment, supra, Chapter 3, pp. 45-113.

Appraisal Methodology

Respondent's appraiser, Mr. Roger Chantal, valued approximately 5,006 items of property relying on what he described as the cost and sales comparison approaches. For the total appraisal problem, Mr. Chantal valued approximately 4,836 items under the cost approach and 170 items under his sales comparison approach.

Sales Comparison Approach

The sales comparison or market approach relied upon by Mr. Chantal consisted of averaging sales prices for given items from L & M publications, without making any adjustments or by taking the used price listing for a given item from Orion, without making any adjustments. Exhibit 1, pp. 6, 12-87; Tr. 92, Lines 8-10; Tr. 93, Lines 1-8; Tr. 97, Lines 17-20; Tr. 103, Lines 7-19. In employing this type of sales approach methodology, the appraiser actually valued 86 items relying upon sales information from L & M and 83 items relying upon Orion sales. One item was valued relying on Farm Hotline.

The value determinations made relying upon Orion data apparently consisted of simply taking the used price listing shown by Orion for the various items of equipment, with no adjustments being made to the listed used price. Orion sales data essentially consists of taking a group of sales of a given item of equipment, discarding the high sales and low sales, and then averaging the sales that are left to provide an indicated fair market value. Tr. 79, Line 13 - Tr. 80, Line 1. Therefore, the used price provided for any item of machinery or equipment from Orion is simply an average, without any adjustments for various factors which might or might not require consideration when valuing any given item of equipment.

Cost Approach

The cost approach relied upon by Mr. Chantal was a very basic procedure. It consisted of simply applying a trend factor or index to the cost to acquire shown on Complainant's asset list and then depreciating the resulting amount by applying a percent good factor based upon an 11 year useful life for all of the equipment. Mr. Chantal relied upon a statistical average of the Marshall & Swift indexing and depreciation tables for all industries to develop his cost approach for each item of machinery or equipment valued under his cost analysis. Exhibit 1, p. 7; Tr. 36, Line 22 - Tr. 37, Line 3. In the simplest terms, the appraiser trended and then depreciated Complainant's asset list. He only reproduced the depreciation schedule, instead of creating an inventory list of his own, based upon a personal inspection and inventory. Tr. 30, Lines 10-15.

Major Reliance on Cost Approach

Respondent's appraiser placed his greatest reliance in arriving at a value for the subject property on his form of the cost approach. Nearly 97% of the 5006 items were valued under Mr. Chantal's trending/depreciation cost approach. Less than 3.4% were valued under Mr. Chantal's form of the sales comparison approach. Mr. Chantal's testimony clearly establishes and gives validity to the importance of using market data and attempting to find comparable sales for each and every item of property as was actually done by Mr. Bealmear in his appraisal for nearly 91% of the items of property. Mr. Chantal agreed that the market should be searched first and only in the absence of market data would the cost approach be conducted. It was Mr. Chantal's position that the market approach measures the fair market value in exchange for property and when properly performed provides the best and leading indicator of what sales values are. He also was of the opinion that it is not the cost approach that is traditionally employed by personal property appraisers. Tr. 76, Line 18 - Tr. 77, Line 10.

It is apparent that Respondent's appraiser did not have access to the range of market data possessed by Complainant's appraiser. However, the Hearing Officer's valuation of the property cannot rest upon the fact that one expert was not in possession of sufficient data to perform a given approach to value, when the other expert researched and developed the market data that was available. Mr. Bealmear was able to value all but less than 10% of the total property relying upon the sales comparison approach. This clearly demonstrates that for the value of the subject property to be based primarily on a cost approach when there is sales data for virtually the entire universe of machinery and equipment which makes up the subject property would be to base a valuation on a very arbitrary and capricious standard. Deference cannot be given to the Respondent Appraiser's cost methodology when it is squarely and overwhelmingly confronted with a valuation resting firmly upon sales comparison data.

Deficiencies in Cost Approach

The cost approach which was developed by Mr. Chantal is only slightly removed from what is the general mass valuation which is employed by assessors throughout the state in their general assessment of machinery and equipment each year. This is a methodology that has not been found to rise to the level of substantial and persuasive evidence in the numerous appeals that have come before the Commission as of this date. (See, Unpersuasiveness of Mass Valuation Methodology in Contested Cases, infra). This record provides no basis upon which the Chantal variation of the mass valuation should be endorsed in this appeal. The only real difference between the Chantal cost valuation and the general mass valuation used by assessor's is that Mr. Chantal listed individual items of machinery and equipment and depreciated them item by item after trending, instead of simply adding up the total costs shown on the Complainant's asset list for each given year and then trending and depreciating that total amount. The results would have been exactly the same, irrespective of whether individual items were listed or the costs were summed for each year.

There are a number of other problems presented by the type of cost technique relied upon by Respondent's appraiser. Mr. Chantal did not contact manufacturers to determine replacement cost new as of January 1, 2000. Tr. 49, Line 19 - Tr. 52, Line 15. Mr. Chantal used the statistical average of all industries to establish the trend index, not an average for manufacturers of plastic products, which is the business of Complainant. Tr. 36, Line 22 - Tr. 37, Line 3. Mr. Chantal trended the original cost reported on Complainant's asset list without regard for whether the costs reported were original or historical costs. Tr. 33, Line 18 - Tr. 35, Line 24. Mr. Chantal did not conduct any specific market analysis to arrive at the cost indexes used, but simply relied on the Marshall and Swift indexes as is his general practice in valuing personal property under his cost methodology. Tr. 38, Lines 3-15. Mr. Chantal trended the costs shown on Complainant's asset list which may have included freight, installation and taxes, although his testimony was that he gave no consideration to such factors and to include them would be improper under the concept of fair market value in exchange. Tr. 28, Line 12 - Tr. 29, Line 8; Tr. 38, Line 19 - Tr. 39, Line 2. The asset list relied upon by the appraiser did in some instances have amounts listed for costs of freight and installation, which the appraiser apparently did not apply a trend factor or depreciation factor to in making his calculations. Exhibit 1, pp. 12-87. In other instances, items identified as installation, service, labor, custom duties or some related term in the asset list were also valued by the appraiser, as will be illustrated below.

Valuing of Entries Described as Installation

Item 1060 (Exhibit 1, p. 30) was described in the asset list as Wiring and Labor for Hot Runner Units in the amount of $397.15 (1999). Mr. Chantal did not value this item considering it as installation. However, Item 1057 (Exhibit 1, p. 30) was described as Wiring for Hot Runner Units in the amount of $2,000 (1999) and Item 1059 (Exhibit 1, p. 30) was also described as Wiring for Hot Runner Units in the amount of $1,000 (1999). In none of these instances did the Complainant's depreciation list have an entry in the column for installation. However, Mr. Chantal did value items 1057 and 1059 under the cost approach, without sufficient inquiry as to whether any part or all of the amounts listed were for labor, as opposed to actual tangible items of equipment.

The basis for valuing some items reported as installation and not valuing some others appears to be that the appraiser used his judgment to draw an arbitrary line at $1,000 for items identified as installation. Anything over $1,000 was valued as tangible property and anything under was not valued, but considered as labor costs. Mr. Chantal simply valued the line item as he determined it to be in his own opinion personal property, without supporting information that would establish if all or part of a line item identified as installation was actually labor and not tangible property. Tr. 138, Line 18 - Tr. 142, Line 23; Tr. 143, Line 25 - Tr. 144, Line 14. An item of service, labor and travel time, transport exp., in the amount of $1,540.62, was valued under the cost approach. Exhibit 1, p. 30, Item 1088; Tr. 142, Line 24 - Tr. 143, Line 3.

The Chantal appraisal contains numerous other such inconsistencies which creates serious questions as to the reliability and validity of the very basis for his cost valuation, in light of the fact that some items of installation are not valued, but then other identical or nearly identically described items are valued. Items clearly described as installation of fire alarm indicators and machine installation costs were valued on nothing more than the fact that the Complainant's bookkeeping depreciation ledger did not have an amount in the column for installation. Exhibit 1, p. 35, Item 1359 & 1397; p. 41, Item 1730; Tr. 143, Lines 4-22.

Other Valuations of Entries Described as Freight and/or Installation

Numerous items with a description of installation and/or freight were valued by Mr. Chantal, simply because the depreciation ledger listed an amount under cost, but did not list an amount under the column for installation or freight. At the same time other items which were also described as installation and/or freight, but had no amount listed under the freight or install column were not valued. This inconsistency in valuation appears throughout the appraisal. Approximately 78 items which were described as freight and/or installation were valued under the Chantal cost approach when there was only an amount given in the cost column and no amount was shown in either the freight or install columns. (Items - 18, 19, 34, 109, 165, 166, 170, 532, 593, 854, 860, 868, 877, 941, 1130, 1183, 1186, 1191, 1254, 1267, 1346, 1359, 1383, 1397, 1434, 1504, 1633, 1646, 1659, 1671, 1730, 1795, 1877, 1918, 2968, 3333,. 3534, 3565, 3595, 3662, 3673, 3674, 3675, 3676, 3678, 3743, 3779, 3972, 3990, 4030, 4038, 4039, 4094, 4100, 4107, 4108, 4112, 4113, 4114, 4193, 4194, 4206, 4208, 4209, 4211, 4212, 4270, 4271, 4275, 4276, 4277, 4305, 4317, 4326, 4330, 4362, 4363, 4364, Exhibit 1, pp. 12-87 ).

Approximately 79 items which also were described as freight and/or installation were not valued even though there was only an amount in the cost column and no amount was shown in either the freight or install columns. (Items - 526, 978, 1060, 1125, 1580, 1596, 1604, 1612, 1620, 1696, 1852, 1871, 1878, 1881, 1882, 1911, 2666, 2671, 2683, 2687, 3223, 3548, 3575, 3588, 3589, 3608, 3747, 3892, 3893, 3894, 3929, 3931, 3939, 3945, 3946, 3967, 3961, 3981, 3982, 3983, 3987, 4012, 4021, 4031, 4041, 4056, 4058, 4059, 4072, 4083, 4084, 4085, 4086, 4093, 4096, 4126, 4189, 4196, 4197, 4199, 4200, 4202, 4204, 4226, 4238, 4239, 4261, 4262, 4279, 4297, 4308, 4311, 4313, 4315, 4331, 4405, 4413, 4414, 4422, Exhibit 1, pp. 12-87).

In other words, in these instances listed items with the same general description as being freight or installation were valued in 78 cases, while in 79 cases the same general freight or installation description items were not valued. This level of inconsistence is a serious flaw in the appraisal of the subject property by Mr. Chantal. The only reasonable conclusion that can be reached is that in various instances, Mr. Chantal did in fact value items of freight and installation under his cost approach, without demonstrating any market data which would establish that such costs did in fact add value to the item for which freight and installation costs had been incurred.

On page 82 of Exhibit 1, Mr. Chantal valued Items 4193, 4194, 4206, 4208, 4209, 4211 and 4212 using his trending and depreciation cost approach. Each of these items are described as Install Primary Power on 1 Inject Mach. No cost amount is given under the install cost column. The only cost figure is under the general cost column.

On the same page, Items 4196, 4197, 4199, 4200, 4202 and 4204 were not valued. Each of these items are described as Installation of Injection Mach. No cost amount is given under the install cost column. The only cost figure is under the general cost column.

On page 73 of Exhibit 1, Item 3743 is described as Install Water Booster Pump in Bldg. # 2. It has an amount of $1,411 in the cost column. No amount is given in the install column. Mr. Chantal valued this entry under his cost approach. On the same page, Item 3747 is described as Install Booster Pump Bldg. # 2. An amount of $3,901 is in the cost column. No amount is listed in the install column. Mr. Chantal did not value this entry, but treated it as installation.

These illustrations demonstrate that the valuation of items described as installation or install was performed on an arbitrary basis without any foundation being established as to whether any of the items described as install or installation were in point of fact actual pieces of machinery and equipment that should be valued. This blatant type of inconsistency appears time and time again throughout the appraisal. It illustrates that a valuation of an bookkeeping ledger is not an appraisal of machinery and equipment. It demonstrates that only when an appraiser actually performs an inventory of property, instead of a cursory walk through inspection of a facility, can he be certain that he will be valuing actual pieces of machinery and equipment, instead of valuing what are simply bookkeeping entries in an accountant's ledger.

Valuation of Entries Described as Freight

Items identified as freight in the description column of Mr. Chantal's appraisal were sometimes valued and sometimes not valued. Tr. 146, Lines 3-17. Item 1877 (Exhibit 1, p. 43) is identified in the description column as Freight on Insert & Inspection Machines, with a cost in 1997 of $2,431.25. No amount is listed in the Freight column of the Complainant's depreciation ledger or the appraisal report. Mr. Chantal trended the amount up and then depreciated it. The very next item (Item 1878, Exhibit 1, p. 43) is also identified in the description column as Freight on Insert and Inspection Machines, with a cost in 1997 of $1,468.14. No amount is listed in the Freight column of the Complainant's depreciation ledger or the appraisal report. Mr. Chantal did not value this entry.

Valuation of Entries Described as Custom Duties

Items of custom duties were valued in some instances and not in others, although Mr. Chantal testified he valued no custom duties. Tr. 146, Line 18 - Tr 147, Line 5. In 23 instances, where items are described as custom duties, Mr. Chantal did not value them. However, in two instances (Items 1890 and 1895, p. 43, Exhibit 1) items specifically described as custom duties were valued under the Chantal trending and depreciation methodology.

The most glaring error relating to custom duties occurs with reference to Items 1030 and 1053 on page 29 of Exhibit 1 of the Chantal valuation. Item 1030 is described as US Custom DR. Memo for Duties for TG-99. An amount of $669,379 is given in the cost column. Mr. Chantal trended this amount up and then depreciated it and valued it as a tangible item of machinery and equipment. Likewise Item 1053 is described as US Custom Dr. Memo for Duties for TG-99-013. The amount of $669,379 is given in the cost column. This item was also valued under the Chantal cost method as machinery and equipment. Mr. Chantal apparently thought that this large of an amount reflected actual machinery and not just custom duties.

However, when a review of the bookkeeping ledger (Exhibit 10) is made no entry of custom duties for $669,379 can be located for the year 1999. There are two entries for custom duties for 1999 each in the amount of $669.79. Exhibit 10, p. 40. Mr. Chantal's explanation that he was not certain that his entries 1030 and 1053 are the same as the two custom duties shown in Exhibit 10 is not persuasive. Tr. 174, Line 9 - Tr. 177, Line 2. The only conclusion that can be reached from a review of Exhibits 1 and 10 is that Mr. Chantal erred initially in valuing custom duties to begin with in these two instances. Mr. Chantal then erred a second time by applying his trending and depreciation methodology to amounts that were not reflected in the bookkeeping ledger.

In at least two other instances, the Chantal appraisal valued custom duties. Items 1890 and 1895 on page 43 of Exhibit 1 are described as CUSTOM DUTIES ON 150-TON IMM. With the amounts of $4,418.13 and $4,602,67 given respectively as the cost for these items. In both of these cases, these entries were valued under the Chantal cost approach. Had a proper inventory of the subject machinery and equipment been made by Mr. Chantal, all of these errors relating to custom duties, installations, freight, etc. would have been avoided, due to the simple fact that such an inventory would not have shown any freight, installation, custom duties, etc. since such items are not part of the tangible items of machinery and equipment that are to be valued in an appeal such as this.

Inconsistencies in Valuation of Injection Machines

On page 47 of Exhibit 1, Mr. Chantal provides a list of various injection machines obtained in 1994. There are 18 entries for various size injection machines. Seventeen of the machines are valued under the sales comparison relying on The L & M Book. One machine is valued with the cost approach.

Entries 2159 and 2160 are both 610 Ton Injection Machines. They were purchased in 1994 for $63,561.89 and $63,561.88. Mr. Chantal valued these machines at $65,600 each, based on The Book. Item 2161 is a 390 Ton Injection Machine, purchased for $45,855.20 in 1994, valued by Chantal at $72,200 relying on The Book. Items 2162, 2163 and 2164 are all 250 Ton Injection Machines purchased in 1994 for $37,086.94 each. Mr. Chantal valued these machines at $42,000 each. In all of these instances, the Chantal valuation shows that six year old machines were increasing in value. This appears to be inconsistent with what would generally be expected that simple physical use would result in a decrease in value of machinery, instead of an increase in value. These valuations raise the question of whether the data used from The Book was for six year old machinery.

Item 2165 is a 170 Ton Injection Machine purchased in 1994 for $34,615.99, valued by Mr. Chantal relying on The Book at $14,250. Item 2167 is also a 170 Ton Injection Machine also purchase in 1994 for $34,615.99, it was valued by Mr. Chantal, also relying on The Book at $34,500. Two identical machines were valued by the same source, but with a difference in indicated value of $20,250.

Item 2174, a 30 Ton Injection Machine was purchased for $10,206.57 in 1994. Mr. Chantal elected to value this item under his cost approach of trending and depreciation to arrive at value of $6,000. However, on Item 2175, also a 30 Ton Injection Machine purchased in 1994 for $10,206.57, Mr. Chantal relied upon The Book to value the machine at $4,600. Once again, two identical machines, acquired in the same year for the same price were given two different values, relying on two different valuation methods.

A further error in the valuation of injection machines occurs on page 48 of the Chantal valuation of the asset list. Item 2254 is shown as a 550 Ton Injection Machine. No year of acquisition is shown, although it appears in the list were acquisitions for 1996 are given. The cost for the 550 machine is shown as $1,996. Item 2255 is described as an 80 Ton Injection Machine purchased for $62,832.28 in 1996. Item 2256 is also an 80 Ton Injection Machine purchase in 1996 for a price of $19,324.48. Mr. Chantal valued Item 2254 under his cost approach and items 2255 and 2256 under his sales methodology, that is a listing or listings in The Book. However, the asset ledger (Exhibit 10, Purchased Leased Equipment, p. 5) provides the following information on injection machines purchased in 1996:

The Chantal valuation for the 550 Ton Injection Machine was for $2,000. The Chantal valuation for both 80 Ton Injection Machines was $42,500. In other words, if the Chantal valuation is to be believed the 550 Ton Machine depreciated in value approximately 97% while the 80 Ton Machines appreciated in value approximately 233%. Such inconsistencies as these raise serious issues concerning the reliability and credibility of the asset list valuation performed by Mr. Chantal.

Proper Cost Methodology

The proper methodology for developing an estimate of value relying on the cost approach starts with a determination of replacement cost new for an item of property as of the date of valuation. The next step is to address the issue of physical depreciation for the item of property and make an appropriate deduction. Functional obsolescence for the property must then be analyzed and an adjustment made for this factor. Finally, the matter of economic obsolescence must be considered and investigated so that a proper adjustment can be made. Valuing Machinery and Equipment, supra, Chapter 3, p. 45.

This is not the methodology utilized by Respondent's appraiser. The cost approach relied upon by Respondent starts with original costs and allegedly trends the cost to estimate current replacement cost, and only then makes a deduction for the element of physical depreciation. Under this trending/depreciation of original costs all machinery and equipment purchased in a given year is trended and depreciated at exactly the same rate. This is true irrespective of whether the item of machinery and equipment is an injection molding machine, extrusion line, drilling machine, ultrasonic welder or ladder (all items of machinery and equipment included in the subject property). The Chantal cost approach does not conform to the usually recognized proper cost approach, thus rendering it far less persuasive than either the sales comparison or cost approach employed by Complainant's appraiser.

Trending in Cost Approach

Respondent Appraiser's methodology is further unpersuasive due to its variance from accepted appraisal practice. The trending factor (whatever it may be for a given year) has been applied by Mr. Chantal to original cost as shown on Complainant's asset list. Trending is applied not to the original cost but to the historical cost. Historical cost is the cost of a property when first placed in service by its first owner. Original cost is the actual cost of a property when acquired by the present owner. In some instances historical and original cost may, of course, be the same. Valuing Machinery and Equipment, supra, Chapter 3, p. 62.

Trending can easily lead to errors in valuation. Trending does not give replacement cost new, but reproduction cost new. It does not provide a means to measure the difference between reproduction cost new and replacement cost new. Trending is to only be applied to historical cost. The appraiser must establish that the cost being trended is the actual historical cost and not a cost resulting from a prior allocation of purchase price or used cost. Historical cost to be trended may not be the typical cost, but may include or exclude cost factors that must be considered and accounted for in a given appraisal problem. Trending of used cost is improper. Trending factors are based on averages, but the specific property being valued may differ from the average. Trending for periods in excess of ten years should not be employed unless confirmation can be made by other methods of estimating cost new. The appraiser should know the basics of how the trending index was developed. Valuing Machinery and Equipment, supra, Chapter 3, pp. 62-64. The record in this appeal provides nothing to demonstrate that any of these concerns are addressed in any manner by the trending index employed by Mr. Chantal. This results in the methodology as applied being unsubstantial and non-persuasive to establish the value proposed.

Depreciation Factors

In like manner, the depreciation factors utilized by Mr. Chantal lack in persuasive content for the purpose for which they are employed. The most obvious deficiency is that the factors do not separately identify physical, functional and economic obsolescence. Nor was it established that the depreciation factors can in any way, shape or form account for functional and economic obsolescence. This results in all individual items of office furniture and equipment for a given year being depreciated at the same rate for physical, functional and economic factors, irrespective of actual physical condition, functional utility or economic circumstances. The same would be true for each item of manufacturing machinery and equipment. Mr. Chantal did not make any specific analysis of physical, functional or economic depreciation for the items of property, but simply relied upon the Marshall and Swift tables and applied depreciation based on life expectancy. Tr. 52, Line 16 - Tr. 71, Line 23. Nor did the appraiser make any market analysis to determine that the life expectancy based on the Marshall and Swift plastic products manufacturing table and used for the subject property was accurate and reliable. Tr. 71, Line 24 - Tr. 75, Line 2. The persuasive content of the values developed under the trending/depreciation method is rendered completely unconvincing and non-compelling in light of these deficiencies and imperfections.

Marshall and Swift Trending and Depreciation Indexes

One final inadequacy in Mr. Chantal's cost approach relates to the reliance on the Marshall and Swift Trending and Depreciation Indexes. The testimony of Mr. Richard D. Vishanoff, Managing Editor of Marshall and Swift Valuation Services established the weaknesses and flaws in simply applying a trending factor and depreciation factor to an acquisition cost which may or may not included tax, freight and installation costs.

Trending Indexes

The Marshall and Swift cost factors (M & S Indexes) are inflation escalators broken down by industries. Most of the elements that go into inflation escalators are some producer price indexes. The M & S Indexes contain some weighting for a number of elements beside the basic cost. There are price elements, some of that being labor and other elements that are weighed in to account for the installation of the equipment including taxes, shipping and installation.

The M & S Indexes are designed to trend a cost up in time, and would be considered a reproduction index of reproducing what the index is being applied to. They are simply inflation escalators. These do not take into account any significant technological change that would take place in the original costs that would be trended. The Indexes were developed originally as inflation escalators for the insurance market. Tr. 194, Line 6 - Tr. 196, Line 8.

Indexes for trending equipment are designed to reflect the changes in an entire industry, and as such do not directly reflect the cost of any one item or a group of items. They are not obtained by periodically repricing actual items of equipment from catalogs and weighting their cost changes to arrive at a composite trend. Indexes are primarily determined by a method of averaging. Total plant costs are averaged based on appraisals in each industry then formulating specialized equipment pricing, which is representative of major equipment groups in proportion to their average occurrence in each of the industries listed in the index. Weightings for installation, taxes and other factors representing the general business activity and condition of the economy are also a part of the indexes. The composite mix of various factors contained in the indexes which are based on average occurrence may never actually exist in any one plant. Exhibit D; Tr. 199, Lines 9-24.

Depreciation Tables

The Marshal and Swift Depreciation Tables (M & S Tables) were originally published in the early nineteen sixties with an extended life methodology generally paralleling original studies done prior to that time for machinery and equipment in place of a straight line or accounting type of methodology. The Tables basically follow the same curve as originally developed, the depreciation curve has not changed. The Tables represent a very general and average approach to encompass all of the various facets of components that Marshall and Swift publish as far as equipment on a very general basis.

The Tables are basically designed as a broad brush approach that can be detailed based on further refinements or adjustments. In order to use any of the Tables properly a person needs to have some type of benchmark or established criteria to work from to validate that they are being used properly. The Tables are one approach among a number of methods that might be available to the appraiser in establishing values. Whether they would be used singly or in conjunction with other methods would depend on the knowledge and experience of the user and the information at hand. The Tables basically account only for typical physical depreciation. They do not account for any excessive or any economic depreciation.

The Tables have a ceiling or cap that is somewhat arbitrary in that they generally stop at 20% good, or depreciated 80%. Essentially the ceiling or cap accounts for value in use. The Tables are based on a value in use principle.

A methodology in which a complete survey of all the items being valued, noting makes and models, is conducted and then going to the used machinery market and establishing what similar types of equipment might be selling for or researching catalog pricing for establishing value would be preferable and superior to simply relying on the Indexes and Tables. This is especially true where there exists reliable market data to provide a foundation for either the cost or sales comparison approaches. Tr. 196, Line 9 - Tr. 199, Line 8.

Summary and Conclusion Relative to the Chantal Cost Approach

Based on the forgoing (Unpersuasiveness of Respondent Expert's Cost Methodology & Marshall and Swift Trending and Depreciation Indexes), the opinions of value propounded by Mr. Chantal which were based upon his cost approach cannot be found to have substantial and persuasive value. The cumulation of the various deficiencies and inadequacies which have been noted and discussed affects 94.21% ($68,179,642 - cost approach valuation/$72,369,000 - total opinion of value = .9421) of the entire value proposed for the subject property. In light of the weaknesses reviewed and examined in the cost approach evidence presented by Respondent's expert and the market data based valuation presented by Complainant's expert the Chantal opinion of value has no probative merit in the valuation of the subject property.

Unpersuasiveness of Respondent Expert's Sales Methodology

Sales Comparison Valuations

Only $4,189,826 of the opinion of value proffered by Mr. Chantal was based upon his sales methodology. This accounts for only 5.79% ($4,189,826/$72,369,000 = .0579) of the total opinion of value given by the appraiser or less than 3.4% of the total items of property (170 - items valued by sales method/5006 - total items of property = .0339). The sales comparison method relied upon by Respondent's Expert consisted in large part of simply taking the reported used price for individual items from Orion Research Corporation. In instances in which the appraiser relied upon data from L & M - The Book, the procedure was a simple averaging if there were two or more reported sales. In neither case where relying upon either Orion or L & M did the appraiser make any adjustments to the reported averaged sales.

However, Mr. Chantal agreed that under a sales comparison approach adjustments are to be made to the comparable property to account for differences between the comparables and the property being valued. He agreed that differences based upon condition, size, effective age, date of sale, circumstances of sale, location, environmental compliance, safety compliance and any other factors affecting sale price should be adjusted for by the appraiser. Tr. 123, Line 21 - Tr. 124, Line 25.

It was the position of Mr. Chantal that the deletion of extra high or low values and the use of the median average is an adjustment. Tr. 125, Lines 1-7. The use of reported sales prices that constitute the average does not qualify as an adjustment. It only qualifies as using an average.

The opinions of value founded upon little more than an average sale price, without taking into consideration the possible need for adjustments renders this methodology without persuasive force to establish a value for the limited number of items valued using reported sales data from Orion and L & M. Furthermore, valuing less than 6% of the total value of the subject property or less than 3.4% of the total number of items of subject property under the Chantal sales method when Complainant's appraiser was able to develop the sales comparison approach for over 75% of the total value and nearly 91% of the total items of the subject property also weighs on the side of unpersuasiveness for the Chantal valuation.

Un-persuasiveness of Mass Valuation Methodology in Contested Cases

Mass valuation of personal property under a standard set of depreciation schedules is used for purposes of reassessment throughout the state, especially when dealing with the machinery and equipment which makes up a manufacturing facility. Due to the multitude of items of personal property and the individual personal property accounts in any given county it is not possible, nor practical for the assessor to perform an individual appraisal on each manufacturing facility for purposes of his annual personal property assessment. Therefore, the methodology whereby the assessor multiplies the total acquisition costs for a given year times a set original cost multiplier amount (trended original cost and percent good factor) for each year to arrive at an indicated true value in money is an appropriate tool to use for valuing office furniture, computer equipment and manufacturing machinery and equipment for purposes of a mass valuation. However, once the issue of valuation has moved to an appeal before the Commission, the mass valuation approach, absent market derived supporting evidence, will generally lack the qualities of substantial and persuasive evidence to establish value. This is especially true in the face of an appraisal based upon market data in the development of sales comparison and cost approaches.

The mass valuation technique has been presented in various contested cases before the Commission (See, P. D. George, et al, infra). It has failed to reach the level of substantial and persuasive evidence in each instance. The reason the method is not persuasive in a contested case is quite simple. There is no hard market data to demonstrate and support the validity and soundness of the underlying figures used in the mathematical calculations. As has been discussed above (See, Proper Cost Methodology, Trending in Cost Approach, Depreciation Factors, supra), the critical factors which go into the math equation are unsupported by the market. This especially true in light of the market data presented by Complainant's expert which clearly provides abundant information to establish that the overwhelming majority of the individual items of machinery and equipment are bought and sold in an active market.

Relying on a set of trending/depreciation tables in a contested case is fatally flawed in the absence of market data to establish the proper foundation for this methodology and in light of actual sales data as demonstrated by Complainant's appraisal. Respondent Appraiser's valuation does not provide any supporting documentation which will demonstrate that acquisition costs as shown on Complainant's asset list trended by a set of inflation factors represents the replacement cost new as of January 1, 2000. There is nothing within the Chantal appraisal that establishes that the various trending and depreciation factors, which were used for furniture and office machines, computers and peripherals, manufacturing equipment and tooling, are appropriate for any of the given items of property or the entire group of items of property which were acquired in a single year to which one depreciation (percent good) factor would apply. Both the trending and depreciation factors must be founded upon market data to satisfy the requirement of being both substantial and persuasive evidence.

The entire exercise of using a factor for trending and depreciation is unnecessary in the vast majority of appeals, since it has been demonstrated time and time again that there is an active user to user (direct), and user to dealer (indirect) market for the vast majority of machinery and equipment that is found in virtually every type of manufacturing facility. (See, P. D. George, et al, infra). Sales from this market can be adjusted to arrive at a market based indication of value. Furthermore, the appropriate and proper methodology, if a party seeks to rely upon the cost approach, is to obtain replacement cost new from the market and then adjust for physical depreciation based upon actual observation of each item of property and adjusted for functional and economic obsolescence derived from appropriate market data and investigation.

Reliance upon acquisition costs, whether historical or original, as the starting point of a valuation exercise in a contested case, and a table of trending and depreciation factors in the face of actual sales data does not reach the level of substantial and persuasive evidence to establish value. It matters little what was paid for an item of equipment five or six years prior to the tax date when one can go to the market and find a sufficient number of actual sales for the item to demonstrate the present value. This procedure (inventory of the property and investigation and research of the present market) eliminates any level of speculation and conjecture as to whether the trended and then depreciated acquisition cost is reflective of market value for individual items of machinery and equipment.

Expert Testimony

A determination of value in a personal property case involving items of machinery and equipment rests to a very large extent on evidence presented by the expert witnesses. Where specialized knowledge will assist the hearing officer to understand evidence or to determine a fact in issue, a witness with necessary knowledge, skill, experience, training and education may testify as an expert. Section 490.065, RSMo. The issue of valuation of machinery and equipment calls for expert testimony in the form of an appraisal and direct and cross-examinations. In the present appeal a witness for each side was tendered as an expert in valuation of the property under appeal.

Complainant's Expert

Complainant's expert, Allen D. Bealmear, brings extensive education, training and experience to the performance of his appraisal assignment. He has in excess of twenty-eight years of appraisal experience. He has performed appraisal and research assignments relating to machinery and equipment in industrial plants in a variety of different industries. Mr. Bealmear has testified as an expert witness in Federal Bankruptcy Courts and tax courts in various states and before the State Tax Commission of Missouri on approximately twenty occasions. Exhibit A, p. 262 & Exhibit B, p. 5, Line 9 - p. 6, Line 15.

Mr. Bealmear was assisted in his appraisal of the subject property by Karen Miles Milan, ASA and CEA and H. W. Choate, ASA. Their experience in appraisal of machinery and equipment in industrial plants is similar to that of Mr. Bealmear. Exhibit A, p. 263 & 264.

Weight Accorded Evidence

The Hearing Officer as trier of the facts is responsible for the weighing of the evidence presented. The Hearing Officer has the duty to evaluate the evidence presented to determine the sufficiency and persuasiveness of the evidence in establishing market value. One of the critical factors in weighing and evaluating evidence is the education, training and experience of the experts who testify on the issue of value.

The Hearing Officer cannot simply turn a blind eye and a deaf ear to the Complainant's evidence as developed and presented by a recognized expert in the field of machinery and equipment valuation. This is especially true in this appeal, where significant and detrimental errors, omissions and flaws in the appraisal methodology and procedure employed by Respondent's expert were clearly demonstrated. The Bealmear appraisal comes within the standards of both the Commission rule (12 CSR 30-3.065(2) and the American Society of Appraisers guidelines (Valuing Machinery and Equipment, supra) for rendering a persuasive opinion of value. The evidence on this record which is possessed of both substantial and persuasive weight is the opinion of value developed by the Bealmear appraisal. This is so because of the following factors:

1. Mr. Bealmear possesses the necessary credentials to establish his expert status for performing both a proper cost approach and a proper market approach to arrive at an opinion of value.

2. The various items of furniture, computer and manufacturing equipment are regularly traded in the used machinery and equipment market as evidenced by the fact that comparable sales data was available on 90.99% of the total items being valued in this appeal (5632/6190 = .9099).

3. Complainant's appraisal valued the items of machinery and equipment on the basis that they will continue to be utilized for the specific purpose or function for which each is designed. The property was not valued on a salvage or scrap basis. The appraiser recognized that the machinery and equipment will continue to be used in a manufacturing process, as evidence by the reliance on sales of comparable machinery and equipment that is bought and sold to be used in an on going manufacturing operation.

4. Complainant's valuation was based upon generally accepted appraisal methodology and practice for furniture, computers, machinery and equipment such as comprise the personal property under appeal, relying upon appropriately developed sales and cost data.

5. No evidence was presented, derived from and/or supported by market transactions, which would establish that the subject property would sell for a value greater than that determined under Complainant's cost and sales comparison approaches.

6. Respondent's mass cost methodology and limited sales comparison methodology failed to demonstrate or establish that such a methodology provides a reliable and persuasive indication of market value and was for all practical purposes countered and rebutted by Complainant's evidence of value.

ORDER

The assessed valuation for the subject property as determined by the Assessor and sustained by the Board of Equalization for Perry County for the subject tax day is SET ASIDE.

The assessed value for the subject property for tax year 2000 is set at $6,593,735.

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 Perry County 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, Complainant 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 December 11, 2001.

STATE TAX COMMISSION OF MISSOURI

W. B. Tichenor

Chief Hearing Officer

END NOTE

The following is a list of recent appeals which have addressed the issue of valuing of machinery, tools and equipment in various manufacturing facilities in various counties.

P. D. George v. Daly, STC Appeal 97-20316, March 21, 2000, Order Granting Application for Review, August 10, 2000, (Daly v. P. D. George Co., Cause No. 004-2046, Circuit Court City of St. Louis, April 24, 2001);

St. Clair Die Casting v. Overschmidt, STC Appeal 99-57024, 5/3/00;

Rexam v. Overschmidt, STC Appeal 99-57025, 5/3/00;

Bull Moose Tube Co. v Overschmidt, STC Appeals 99-57027 & 99-57028, 5/3/00;

Angeles Group, Inc. v. Overschmidt, STC Appeal 99-57029, 5/3/00;

Ducoa v. Tunnell, STC Appeal 99-65000, 5/5/00;

St. Louis Post-Dispatch v. Daly, STC Appeal 99-20261, 1/29/01;

Nordyne, Inc. v. Daly, STC Appeal 99-20263 (1/29/01);

Lincoln Industrial v. Daly, STC Appeal 99-20264, 1/29/01;

Boxes, Inc. v. Daly, STC Appeal 99-20265, 1/29/01;

P. D. George v. Daly, STC Appeal No. 99-20262, 2/2/01;

Sunline Brands v. Daly, STC Appeal 99-20269, 4/30/01;

Alumax Foils, Inc. v. Daly, STC Appeal 99-20270; 4/30/01;

St. Clair Die Casting Company v. Overschmidt, STC Appeal 00-57002, 5/16/01;

Rexam Containers v. Overschmidt, STC Appeal No. 00-57003, 5/16/01;

Bull Moose Tube Company v. Overschmidt, STC Appeals No. 00-57004 & 00-57005, 5/16/01;

Lowell Manufacturing Co. v. Overschmidt, STC Appeal 00-57006, 5/16/01.

Warner-Jenkinson v. Daly, STC Appeal 99-20267, 8/8/01.

Watlow Industries v. Ruhl, STC Appeal 00-81000, 8/8/01.

VonWeise Gear v. Overschmidt, STC Appeal 00-57001, 8/8/01.

Pohlman, Inc. v. Gogarty, STC Appeal 00-10023, 9/6/01.

Nestle USA, Inc. V. Gogarty, STC Appeal 00-1006, 00-10007 & 00-10008, 10/4/01.

Leonards Metal, Inc. v. Zimmerman, STC Appeals 00-33002 & 00-33003, 11/6/01.

Ambassador Envelope Co. v. Zimmerman, STC Appeal 00-33004, 11/6/01.

Pohlman, Inc. v. Zimmerman, STC Appeal 00-33006, 11/6/01.