MB MOTEL MANAGEMENT, INC.,	)
	)
Complainant,	)
	)
v.	)		Appeal Number 01-11368
	)
PHILIP A. MUEHLHEAUSLER,	)
ACTING ASSESSOR,	)
ST. LOUIS COUNTY, MISSOURI,	)
	)
Respondent.	)

Decision of the St. Louis County Board of Equalization sustaining the assessment made by the Assessor, SET ASIDE, Hearing Officer finds true value in money for the subject property for tax years 2001 and 2002 to be $747,090, assessed value of $239,070.

Complainant appeared By Counsel, Richard J. Magee, St. Louis, Missouri.

Respondent appeared by Counsel, Paula J. Lemerman, Associate County Counselor.

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

The Commission takes this appeal to determine the true value in money for the subject property on January 1, 2001.

Complainant appeals the decision of the St. Louis County Board of Equalization which sustained the valuation of the subject property. The Assessor determined an appraised value of $891,000 (assessed value of $285,120, as commercial property). Complainant proposed a value of $679,597 (assessed value of $217,470). A hearing was conducted on July 30, 2003, at the St. Louis County Government Center, Clayton, Missouri. Transcript of the evidentiary hearing was received by the Commission on August 21, 2003.

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

Complainant initially filed with the Commission Exhibits A through O. At the evidentiary hearing, Complainant withdrew Exhibits A through N. Exhibit O was the written direct testimony of Mahendra Gandhi, manager of the subject property and sole shareholder of Complainant. Exhibit O was received into evidence. Mr. Gandhi offered his opinion of value for the subject property to be $679,597. Mr. Gandhi also testified under cross and redirect examination.

Respondent placed into evidence the appraisal (Exhibit 1) and written direct testimony (Exhibit 2) of Ms. Linda Stojan, appraiser for St. Louis County. Ms. Stojan also testified under cross and redirect examination. The opinion of value determined by Ms. Stojan was $1,126,000, however, the opinion was offered only for the purpose of supporting the valuation by the Assessor and the Board of $891,000.

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

2. The subject property is located at 650 South Highway Drive, Fenton, Missouri. The property is identified by locator number 25O210625 and is otherwise known as the Econo Lodge Motel. The property consists of 2.31 acres improved by a 76 unit low cost limited service motel.

3. There was no evidence of new construction and improvement from January 1, 2001, to January 1, 2002, therefore, the valuation determined for tax year 2001 is also applicable for tax year 2002.

4. The income approach to value is appropriate for valuing the subject property. Exhibit A, Q & A 5; Exhibit 1, Q & A 20.

5. The stabilized effective gross income for the subject property is $541,675.

6. The allowable expenses are $416,538.

7. The Net Operating Income (NOI) attributable to the subject property is $125,137.

8. The NOI attributable to non-realty components is 205 or $25,027.

9. The NOI attributable to the real property is $100,110.

10. A total capitalization rate of .1341, including the effective tax rate, is appropriate.

11. The indicated true value in money determined under the income approach is $747,090 ($100,110/.1340 = $747,089.55, rounded to $747,090).

12. The assessed value of the subject property is $239,070 ($747,090 x .32 = $239,068, rounded to $239,070).

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.

There is a presumption of validity, good faith and correctness of assessment by the County Board of Equalization. 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).

The presumption in favor of the Board is not evidence. A presumption simply accepts something as true without any substantial proof to the contrary. In an evidentiary hearing before the Commission, the valuation determined by the Board, even if simply to sustain the value made by the Assessor (which is not presumed to be correct), is accepted as true only until and so long as there is no substantial evidence to the contrary.

There is no presumption that the assessor=s valuation is correct. Section 138.431.3, RSMo.

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).

Market value is the most probable price in terms of money which a property should bring in competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeable and assuming the price is not affected by undue stimulus.

Implicit in this definition is the consummation of a sale as of a specific date and the passing of title from seller to buyer under conditions whereby:

1. Buyer and seller are typically motivated.

2. Both parties are well informed and well advised, and each acting in what they consider their own best interests.

3. A reasonable time is allowed for exposure in the open market.

4. Payment is made in cash or its equivalent.

5. Financing, if any, is on terms generally available in the Community at the specified date and typical for the property type in its locale.

6. The price represents a normal consideration for the property sold unaffected by special financing amounts and/or terms, services, fees, costs, or credits incurred in the transaction.

Real Estate Appraisal Terminology, Society of Real Estate Appraisers, Revised Edition, 1984; See also, Real Estate Valuation in Litigation, J. D. Eaton, M.A.I., American Institute of Real Estate Appraisers, 1982, pp. 4-5; Property Appraisal and Assessment Administration, International Association of Assessing Officers, 1990, pp. 79-80; Uniform Standards of Professional Appraisal Practice, Glossary; Exhibit 1, p. 6.

In order to investigate appeals filed with the Commission, the Hearing Officer has the duty to inquire of the owner of the property or of any other party to the appeal regarding any matter or issue relevant to the valuation, subclassification or assessment of the property. The Hearing Officer=s decision regarding the assessment or valuation of the property may be based solely upon its inquiry and any evidence presented by the parties, or based solely upon evidence presented by the parties. Section 138.430.2, RSMo.

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).

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).

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).

In order to prevail, Complainant must present an opinion of market value and substantial and persuasive evidence that the proposed value is indicative of the market value of the subject property on January 1, 2001. 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). See also, Westwood Partnership v. Gogarty, 103 S.W.3d 152 (Mo. App. E.D. 2003); Daly v. P. D. George Co., 77 S.W.3d 645 (Mo. App. E.D. 2002).

The owner of property is generally held competent to testify to its reasonable market value. Boten v. Brecklein, 452 S.W.2d 86, 95 (Sup. 1970). The owner=s opinion is without probative value however, where it is shown to have been based upon improper elements or an improper foundation. Shelby County R-4 School District v. Hermann, 392 S.W.2d 609, 613 (Sup. 1965).

Missouri courts have approved the comparable sales or market approach, the cost approach (replacement or construction) and the income approach as recognized methods of arriving at fair market value. St. Joe Minerals Corp. v. STC, 854 S.W.2d 526, 529 (App. E.D. 1993); Aspenhof Corp. v. STC, 789 S.W.2d 867, 869 (App. E.D. 1990); Quincy Soybean Company, Inc., v. Lowe, 773 S.W.2d 503, 504 (App. E.D. 1989), citing Del-Mar Redevelopment Corp v. Associated Garages, Inc., 726 S.W.2d 866, 869 (App. E.D. 1987); and State ex rel. State Highway Comm=n v. Southern Dev. Co., 509 S.W.2d 18, 27 (Mo. Div. 2 1974).

In any case in St. Louis County where the assessor presents evidence which indicates a valuation higher than the value finally determined by the assessor or the value determined by the board of equalization, whichever is higher, for that assessment period, such evidence will only be received for the purpose of sustaining the assessor=s or board=s valuation, and not for increasing the valuation of the property under appeal. Section 138.060, RSMo; 12 CSR 30-3.075.

The Hearing Officer determines value for the subject property employing the income approach. The actual stabilized income and expense figures, plus allowances to account for additional salaries, management fee and reserves for replacement, are used to construct the income approach. Stabilized income and expense figures are derived by averaging amounts for the years 1999, 2000 and 2001, as reflected in the statements of revenue shown in Exhibit D of Exhibit 1. There was no dispute between the parties that the income approach was appropriate. The points of contention and disagreement related to allowances for salaries and management fee.

Although Respondent=s appraiser testified she made an allowance for management fee and accounted for reserves for replacement, this is not supported by actual calculations. The actual stabilized expenses, after removing amounts for depreciation, amortization and real estate taxes, was $320,975. Respondent=s appraiser arrived at allowable stabilized expenses of $321,182, or only $207 more than actual stabilized expenses. Actual expenses did not account for a management fee, nor for reserves for replacement and only had salaries that were approximately 18% of the effective gross income.

The effective gross income of $523,950 was agreed to by both Mr. Gandhi and Ms. Stojan. However, Exhibit D reflects additional income from telephone, vending machines and miscellaneous income. This should have been accounted for in the effective gross income (EGI). The Hearing Officer stabilized both the net sales income and this additional income to arrive at the stabilized effective gross income of $541,675.

The stabilized allowable expenses, not including salaries, management fee or reserves for replacement, calculated to $221,536. An allowance of 30% of EGI to account for salaries is appropriate. This calculates to $162,502. Mr. Gandhi advocated the 30% figure and Ms. Stojan agreed that salaries should fall in the range of 20-40%. Exhibit O, Q & A 6; Tr. 31, Lines 8-12; Tr. 37, Line 15 - Tr. 38, Line 3.

The item of a management fee was disputed between the parties. Mr. Gandhi asserted that a 6% fee was appropriate. This was essentially based on his experience and understanding that a 6-10% fee was appropriate. Tr. 8, Lines 4-18. Ms. Stojan felt the range should be 3-7%. Tr. 38, Lines 9-11. The range for a management fee based on a percentage of gross revenue of 2-6% is advocated by Stephen Rushmore, MAI, in Hotels and Motels, A Guide to Market Analysis, Investment Analysis and Valuations, Appraisal Institute (1997) p. 112. The Hearing Officer decided on a 3% management fee or $16,250, in the absence of more direct data as to actual market management fees in the St. Louis metropolitan area for motels similar to the subject.

The expense statements reflected no reserves for replacement. However, an allowance for reserves is appropriate. Ms. Stojan asserted she added 3% for reserves. Tr. 40, Lines 2-12. However, as discussed above, that is not supported by the calculations of actual allowable expenses from the income and expense statements. A 3-5% of total revenue is generally considered sufficient to account for reserves. Hotels and Motels, supra, p. 187. The Hearing Officer concludes on a 3% reserve for replacement or $16,250.

The total of stabilized allowable expenses, including salaries, management fee and reserves for replacement calculates to $416,538. Subtracting expenses from the EGI of $541,675 produces the net income attributable to the subject property of $125,137. From this amount both Mr. Gandhi and Ms. Stojan were in agreement that a deduction equal to 20% to account for the income attributable to non-realty components was appropriate. Exhibit O, Q & A 6; Exhibit 1, p. 22. Making this deduction of $25,027 produces the net operating income attributable to the real estate of $100,110.

Mr. Gandhi offered a capitalization rate of .1341, this included an effective tax rate of .0291. However, Ms. Stojan had corrected her appraisal to the correct tax rate of .0290. When this adjustment is made to Mr. Gandhi=s capitalization rate, it is .1340. Capitalizing the net operating income of $100,110 by .1340 results in an indicated value of $747,090 ($100,110/.1340 = $747,089.55, rounded to $747,090).

The Hearing Officer determines the true value in money of the subject property as of January 1, 2001, to be $747,090.

Respondent also presented a sales comparison approach to value. The Hearing Officer was not persuaded by the value determined under this approach. The critical element in a comparison of motel/hotel properties in a sales analysis is the underlying income stream of the comparables. The income stream which supported the sale price provides important data to establish a unit value for purposes of comparison to the property being appraised. In other words, being able to determine for the comparables the gross income, allowable expenses and net operating income attributable to the real property provides a strong indicator relative to the comparability of the sale properties to the property being appraised. The Hearing Officer understands it is not always possible for an appraiser to be able to access such information.

The income approach developed above shows that the per unit (room) value of the subject falls just below $10,000. Ms. Stojan=s indicated value of $16,000 using the sales comparison approach is not supported by the actual performance of the subject. Accordingly, no weight was given to the opinion of value concluded under this approach.

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

The assessed value for the subject property for tax years 2001 and 2002 is set at $239,070.

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

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

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

SO ORDERED September 17, 2003.

STATE TAX COMMISSION OF MISSOURI

W. B. Tichenor

Chief Hearing Officer