Brooks & Janis McArthy v. Holman

Decisions of the Jefferson County Board of Equalization increasing the assessments made by the Assessor, SET ASIDE, Hearing Officer finds true value in money for the subject property in appeal 01-34016 for tax years 2001 and 2002 to be $43,815, assessed value of $7,180 ($27,480/$5,220 - residential and $16,335/$1,960 - agricultural); and the true value in money for the subject property in appeal 01-34017 for tax years 2001 and 2002 to be $1,717,935, assessed value of $462,450 ($639,855/$121,570 - residential; $20,510/$2,460 - agricultural; $1,057,570/$338,420 - commercial).

The Commission takes this appeal to determine the true value in money and the correct classification for the subject properties on January 1, 2001. More specifically, the Commission takes this appeal to determine the true value in money for the subject golf course and whether land determined to be agricultural graded forest land by a previous decision of the Commission is to remain in the classification absent a change in the use of the land.

Complainant appeals the decision of the Jefferson County Board of Equalization which increased the valuations of the subject properties.

In appeal 01-34016, the Assessor determined an appraised value of $23,000 (assessed value of $1,200, as residential property and $2,000, as agricultural property). The Board determined an appraised value of $210,000 (assessed value of $39,900, as residential property).

In appeal 01-34017, the Assessor determined an appraised value of $3,340,500 (assessed value of $268,200, as residential property; $ $2,500, as agricultural property and $610,600, as commercial property). The Board determined an appraised value of $3,579,200 (assessed value of $317,500, as residential property and $610,600, as commercial property).

Complainant appealed the reclassification of the forest land to residential property and the valuation thereon and appealed the valuation on the residential and commercial property. Complainant proposed a value of $$1,297,745 for the subject golf course and agricultural classification for the forest land.

A hearing was conducted on April 16, 2003, at the Jefferson County Courthouse, Hillsboro, Missouri.

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

Exhibit A Appraisal Report of Thomas R. McReynolds, MAI, Missouri State Certified General Real Estate Appraiser.

Exhibit C Written Direct Testimony of Steven A. Weber, co-owner of Property Assessment Review, representative of Complainants.

Counsel for Complainant filed a Motion in Limine at the beginning of the Evidentiary Hearing. The Motion was taken under advisement and Counsel for Respondent was given fifteen days to file any response. Tr. 3, Lines 20-24. No response was filed. Motion in Limine is granted. See, DECISION, Agricultural Classification, infra.

Exhibit 1 Appraisal Report of Terry Roesch, Missouri State Certified Residential Real Estate Appraiser.

At the close of the Evidentiary Hearing the Hearing Officer requested of Counsel for Respondent a copy of the 2000 tax bills on the subject properties. A copy of same was made by staff of the Respondent and delivered to the Hearing Officer. Counsel for Complainant also provided the Hearing Officer with a photocopy of the actual tax bills on the subject properties for tax year 2000. These documents were labeled as Commission Exhibit 1 (CE-1) for purposes of identification and made a part of the record.

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

2. The Commission takes official notice of its prior decision on the subject properties and the issue of agricultural classification of forest land in McArthy v. Holman, 49th Annual Report of STC 526 (1994). Tr. 3, Lines 18-19; Motion in Limine.

3. The subject property in appeal 01-34016 is located at 5300 Dulin Creek Road, House Springs, Missouri. The property is identified by map number 07-5.0-21.0-001. It is the same property that was the subject of appeal in McArthy v. Holman, Appeal No. 93-34071. The property consists of 221.3 acres, 3.5 acres being part of the Deer Creek Country Club's golf course and 217.8 acres being undeveloped forest land. McArthy v. Holman; CE-1; Exhibit A, p. 49; Exhibit 1, p. 22.

4. The subject property in appeal 01-34017 is also located at 5300 Dulin Creek Road, House Springs, Missouri. The property is identified by map number 07-5.0-16.0-010. It is the same property that was the subject of appeal in McArthy v. Holman, Appeal No. 93-34070. The property consists of 360 acres, 86.5 acres being part of the Deer Creek Country Club and 273.5 acres being undeveloped forest land. McArthy v. Holman; CE-1; Exhibit A, p. 49; Exhibit 1, p. 22.

5. The Deer Creek Country Club golf course comprises a total of 90 acres (3.5 acres - Appeal 01-34016 and 86.5 acres - Appeal 01-34017). McArthy v. Holman, pp. 528, 534-535. Complainant's appraiser cited approximately 91.5 acres as the area developed and devoted to the golf course. The difference here is de minimis and the acreage of 90 acres will be utilized as the area containing the golf course, with all remaining acreage consisting of undeveloped forest land. The 3.5 acres in Appeal 01-34016 does not consist of any part of the parking lot, clubhouse or other structures, but only golf course land. Golf course land consists of the land on which the game of golf is played with the various improvements to that land consisting of tee boxes and stairs, fairways, hazards, bunkers, sand traps, greens, wetland areas, lakes, retaining walls, and cart paths. It is to be classified as residential property and assessed at nineteen percent (19%) of fair market value. The 86.5 acres in Appeal 01-34017 consists of the golf course land per se, including 5 acres of land on which are located non-golf course land structures, including the clubhouse, parking lot, cart shelter, maintenance building, and pool. The golf course land is to be classified as residential property, the land on which are located the non-golf course land structures and said structures are to be classified as commercial property and assessed at thirty-two percent (32%) of fair market value. See, CONCLUSIONS OF LAW, Classification of Golf Courses, infra; McArthy v. Holman.

6. There was no evidence of new construction and improvement from January 1, 2001, to January 1, 2002, to either the golf course or the undeveloped woodland of the subject properties.

7. The use of the 491.3 acres of undeveloped forest land has not changed since the rendering of the Commission Decision and Order in McArthy v. Holman. There are no roads constructed on the forest land acreage. There are no utilities, such as public water, electricity, gas, sewers, street lighting or other public services available to the forest land. The only access to the forest land is to go through the golf course. The golf course has only approximately 50 feet of frontage on Dulin Creek Road. There is no separate road frontage for the forest land. Exhibit D, Q & A, 4 - 8; Tr. 104, Line 19 - Tr. 108, Line 23.

8. The reclassification of the forest land from agricultural to residential by the Board occurred as a result of Terry Roesch's conversation with Steven A. Weber and Mr. Roesch's instruction to Mr. Weber that if the appeal to the Board on the property in appeal 01-34017 was not withdrawn that the Assessor's Office would ask the Board not only to reclassify the forest land portion of this property as residential, but to do the same on the property in appeal 01-34016, that had not originally been appealed to the Board. When the appeal on the golf course was taken up by the Board, Mr. Weber was advised by the Chairman that the matter would be continued until July 20, 2001, and that if the Complainants went ahead with an appeal, the Board would reclassify the agricultural land to residential. When the matter was taken up on July 20, the Board reclassified the forest land on both parcels from agricultural to residential. Exhibit C, Q & A, 4 - 9.

9. The 217.8 acres of forest land in Appeal 01-34016 and the 273.5 acres of forest land in Appeal 01-34016 are to be valued as agricultural grade # 7 land and valued at $75.00 per acre. McArthy v. Holman, pp. 534-535. The true value in money of the 217.8 acres in Appeal 01-34016 is $16,335 (217.8 x 75 = $16,335). The true value in money of the 273.5 acres in Appeal 01-34017 is $20,510 (273.5 x 75 = $20,512, rounded to $20,510). The assessed value of the agricultural land in Appeal 01-34016 is $1,960 ($16,335 x .12 = $1,960). The assessed value of the agricultural land in Appeal 01-34017 is $2,460 ($20,510 x .12 = $2,461.20, rounded to $2,460).

10. The Income Approach to value the subject golf course is appropriate in this appeal. Exhibit A, pp. 70-80.

11. For purposes of performing the income approach to value the subject golf course real estate, the following factors were established by substantial and persuasive evidence in this record. Exhibit A, pp. 70-78; Exhibit CE-1.

A.	Gross Receipts	$630,000
B.	Less: Cost of Goods Sold	$ 28,000
C.	Gross Profits	$602,000
D.	Less: Expenses	$342,490
E.	Net Operating Income	$259,510
G.	Less: Entrepreneurial Profit @15%	$ 38,930
H.	Real Estate Net Operating Income	$220,580

Expenses do not include real estate taxes. Figures have been rounded to nearest $10.

12. A capitalization rate of 11% before adding an effective tax rate is appropriate. Exhibit A, pp. 75-77. An effective tax rate of 1.23% is appropriate for residential property (6.4554/100 = .064554 x .19 = .012266) or an overall rate of 12.23%. An effective tax rate of 2.14 is appropriate for commercial property (6.6954/100 = .066954 x .32 = .021426) or an overall rate of 13.14%. Exhibit CE-1.

13. An allocation of 36.7% of the subject property as residential and 63.6% as commercial is appropriate. Exhibit B, Q & A 32.

14. For purposes of utilizing an effective tax rate, the net operating income is allocated as 37% residential, or $81,615, and 63% commercial, or $138,965. The capitalization of the residential income produces an indicated value of $667,335 ($81,615/.1223 = $667,334.42, rounded to 667,335). The capitalization of the commercial income produces an indicated value of $1,057,570 ($138,965/.1314 = $1,057,572.29, rounded to $1,057,570).

15. Complainant's evidence was substantial and persuasive to rebut the presumption of correct assessment and valuation by the Board of Equalization and establish the correct agricultural grade and value for the subject undeveloped forest land and the true value in money of $1,724,905 for the golf course.

16. The residential value for the 3.5 acres (golf course) in Appeal 01-34016 is $27,480 ($667,335/85 acres = $7,851 x 3.5 = $27,478.5, rounded to $27,480), assessed value of $5,220 ($27,480 x .19 = $5,221.20, rounded to $5,220). The combined residential and agricultural value for the property in Appeal 01-34016 is $43,815, ($27,480 + $16,335 = $43,815), with a combined assessed value of $7,180 ($5,220 + $1,960 = $7,180).

17. The value for the 80 residential acres in Appeal 01-34017 is $ ($667,335 - $27,480 = $639,855), assessed value of $121,570 ($639,855 x .19 = $121,572.45, rounded to $121,570). The value for the 5 commercial acres and structures is $1,057,570, assessed value of $338,420 ($1,057,570 x .32 = $338,422.40, rounded to $338,420). The combined residential, agricultural and commercial values equal $1,717,935 ($639,855 + $20,510 + $1,057,570 = $1,717,935). The combined assessed values equal $462,450 ($121,570 + $2,460 + $338,420 = $462,450).

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.

Agencies shall take official notice of all matters of which the courts take judicial notice. Section 536.070(6), RSMo.

Courts will take judicial notice of their own records in the same cases. State ex rel. Horton v. Bourke, 129 S.W.2d 866, 869 (1939); Barth v. Kansas City Elevated Railway Company, 44 S.W. 788, 781 (1898). In addition, courts may take judicial notice of records in earlier cases when justice requires - Burton v. Moulder, 245 S.W.2d 844, 846 (Mo. 1952); Knorp v. Thompson, 175 S.W.2d 889, 894, transferred 167 S.W.2d 105 (1943); Bushman v. Barlow, 15 S.W.2d 329, 332 (Mo. banc 1929)) - or when it is necessary for a full understanding of the instant appeal. State ex rel. St. Louis Public Service Company v. Public Service Commission, 291 S.W.2d 95, 97 (Mo. banc 1956).

There is a presumption of validity, good faith and correctness of assessments by the State Tax Commission. 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).

In establishing the value of a parcel of real property the county assessor shall consider previous decisions of the county board of equalization, the state tax commission or a court of competent jurisdiction that affected the value of such parcel. Section 137.076, RSMo.

In counties within the first class where a taxpayer has appealed to the state tax commission the assessment of the taxpayer's property, real or personal, and that appeal has been successful, then in the next following and all subsequent years the basis upon which the assessor must base future assessments of the subject property shall be the basis established by the successful appeal and any increases must be established from that basis. Section 137.345.5 RSMo.

There is a presumption of validity, good faith and correctness of assessment by the County Board of Equalization. Hermel, Inc. v. STC; Chicago, Burlington & Quincy Railroad Co. v. STC; May Department Stores Co. v. STC; supra.

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 or classification determined by the Board 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:

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 A, p. 7; Exhibit 1, p. 5.

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, Complainants 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).

Respondent, when advocating a value different from that determined by the original valuation or a valuation made by the Board of Equalization, must meet the same burden of proof to present substantial and persuasive evidence of the value advocated as required of the Complainant under the principles established by case law. Hermel, Cupples-Hesse, Brooks, supra.

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).

The true value in money of agricultural land is the value which the land has for agricultural purposes under the agricultural grades establish by regulation of the Commission. After land has been established to be agricultural land and is valued and assessed accordingly, the land shall remain as agricultural land as long as the owner of the land continues the agricultural use. Sections 137.017 & 137.021, RSMo.

Forest land, whose cover is predominantly trees and other woody vegetation, should not be assigned to a land classification grade based on its productivity for agricultural crops. Forest land of two (2) or more acres in area, which if cleared and used for agricultural crops, would fall into land grades #1 - #5 should be placed into land grade #6; or if land would fall into land grades # 6 or # 7 should be placed in land grade #7. Forest land may or may not be in use for timber production, wildlife management, hunting, other outdoor recreation, or similar uses. 12 CSR 30-4.010(2)(A).

Agricultural Grade # 7 land has a productive value of seventy-five dollars ($75) per acre. 12 CSR 30-4.010(1)(G).

The land used as a golf course is the ground itself on which the game of golf is played as well as improvements that make up the course, i.e. tee boxes, cart paths, fairways, bunkers, sand traps, water hazards, greens, and is to be classified as residential property. A commercial classification is given to clubhouses, swimming pools, tennis courts, parking lots, and pro shops. Zimmerman v. Missouri Bluffs Golf Joint Venture, et al., 50 S.W.3d 907 (Mo. App. E.D. 2001).

The Decision in the instant appeals turns on both a matter of classification and valuation. The classification issue relates to the forest land acreage and the mixed classification of the golf course pursuant to the court ruling in Zimmerman, supra. The valuation issue relates to the golf course valuation, since the determination of the forest land classification will dictate its value. The issue of the forest land classification will be addressed first.

The classification of the forest land was settled under the 1994 Decision in McArthy v. Holman. (McArthy v. Holman was decided in 1994, but was an appeal of the 1993 assessment.) Absent a change in how the forest land acreage has been used, there is no statutory authority for the Board to arbitrarily reclassify these tracts. The agricultural grade classification and resulting valuation made by Hearing Officer Smashey in 1994 must be reinstated on four grounds. They are: statutory prohibition on changing classification on agricultural land, application of Commission rule, presumption of correct assessment by the Commission in 1994, and statutory mandate on basis for future assessments.

Sections 137.017 and 137.021 establish a prohibition against changing the classification of land that has been deemed agricultural in the absence of some change in use which would place the property in either the residential or commercial classification. See, CONCLUSIONS OF LAW, Valuation of Agricultural Land, supra. It is significant in the statutory scheme adopted by the legislature that absent a change in the use to which the owner is putting agricultural land it remains under the agricultural classification.

In the present appeals, the record is uncontroverted, as testified to by Mr. McArthy, that no change has been made to the forest land acreage since the 1994 Commission Decision and Order. There has been no platting or subdividing of the land to develop it for either a residential or commercial purpose. No improvements have been made to bring roads and utilities onto the property.

The forest land remains as it was when purchased by Complainants and as it existed in 1993 when appeal was made to the Commission on the issue of classification of the forest land. The forest land continues to exist as land covered predominately with trees and other woody vegetation. In other words, its use is as undeveloped forest land. The statutory prohibition against taking away the agricultural classification, in the absence of change in use, denies either the Board or the Commission the authority to classify the property as residential or commercial.

Land qualifies for agricultural classification and agricultural grade valuation land as forest land by meeting certain factors. These factors are: (1) land covered predominantly by trees and other woody vegetation; (2) land containing two or more acres in area; (3) land that may or may not be in use for timber production, wildlife management, hunting, other outdoor recreation or similar uses. See, CONCLUSIONS OF LAW, Classification of Forest Land, supra. The land in question possessed each of these factors in 1993 and still so possesses each of them in 2001. The Commission Rule as applied in the 1993 appeal must likewise be applied in 2001.

The same case law which establishes a general presumption of good faith, validity and correct assessment in a local Board, likewise creates such a presumption in the Commission. See, CONCLUSIONS OF LAW, State Tax Commission Presumption & Board of Equalization Presumption, supra. The presumption in favor of the Commission's classification in the 1993 appeal is controlling over any presumption of correct assessment by the Board in 2001 based upon the evidence in this record. There are a couple of reasons for this.

First, the Commission sits as the constitutionally and statutorily superior agency. Owners of property appeal from the Board to the Commission. The Commission is charged with rendering decisions on all questions and disputes involving the assessment against property, valuation of the property, method of valuation or a discriminatory assessment. Therefore, a decision by the Commission on an issue of the proper classification of property establishes the correct classification as against a change by a Board in a subsequent tax cycle, absent a change in the property's use.

Second, the evidence in this appeal establishes no basis in fact to justify the change in classification of the subject forest. The change made by the Board to reclassify the forest land from agricultural to residential was not made because evidence was presented showing that the Complainants had altered the use of the land since the decision of the Commission in the 1993 appeal. No such evidence exists.

In 1993 when the Complainants perfected their appeal to the Commission the result was they were successful in their claim of agricultural classification on the forest land which comprises a total of 491.30 acres of the two tracts under appeal. This successful appeal in 1993 provided a right for the taxpayers to have this land assessed based upon their successful 1993 appeal. See, CONCLUSIONS OF LAW, Prior Commission Decisions Affecting Value, supra. The controlling statute (Section 137.345.5, RSMo) establishes that upon a successful appeal a basis for future assessments is established.

Future assessments must conform to the basis established by the successful appeal. In the case of the present appeals and the classification for the forest land the 1993 appeal established the basis for all future assessments of the forest land, absent a change in use. That basis established is the land is to be assessed as grade #7 agricultural land and the value per acre assigned to the forest land is the per acre value established by Commission rule setting agricultural productivity values.

The Missouri Court of Appeals Eastern District has established that a golf course consists of the land on which a golf course is laid out along with certain improvements to the land which are necessarily incident to the course. Those items of improvements deemed to be incident to a golf course included the tee boxes, bunkers, greens, sand traps, cart paths and maintenance sheds. However, the amenities of a club house, parking lots, a pool, pro shops, snack bars and restaurants are not part of the land and improvements necessarily incident to a golf course. See, CONCLUSIONS OF LAW, Classification of Golf Courses, supra.

In the present appeal the only evidence relative to a division or allocation between the residential and commercial portions of the subject property which makes up the Deer Creek golf course was the testimony of Complainants' appraiser. Mr. McReynolds testified as to an allocation of 37% to residential and 63% to commercial. This was based upon the original cost of development associated with the golf course. Based upon this record and in the absence of any evidence to the contrary this is an appropriate basis for the allocation.

Said allocation is applied to these appeals as set forth in FINDINGS OF FACT 13 to arrive at the valuation to be attributed to residential and commercial classifications of the Deer Creek Golf Course.

The evidence of value presented by Complainants' expert relying on the income approach to value was substantial and persuasive to both rebut the presumption of correct assessment by the Board, as it related to the golf course and to establish the value for the golf coures. The income approach is the most appropriate method for a determination of value of the subject property. The income approach most appropriately reflects what a well informed buyer would be willing to pay for the subject property as of January 1, 2001. In like manner, this approach provides a reasonable and supportable basis to establish what the well informed seller would expect to receive for the property. The prospective hypothetical purchase of the subject golf course would most likely be an investor purchaser. Such a purchaser is going to look at the actual historic income stream of this property. Therefore, a valuation developed which places the greatest reliance on the income approach provides the substantial and persuasive evidence necessary to satisfy the burden of proof in this case.

The Hearing Officer's determination of value employed the income methodology utilized by Mr. McReynolds with the exception of a few elements. The Hearing Officer first deducted from the McReynolds income approach an amount equal to the 2000 taxes on the subject properties. This element of expense was then accounted for by developing an effective tax rate for both residential and commercial property.

These two tax rates were developed relying upon Mr. McReynolds allocation of 37% value to residential and 63% to commercial. The allocation of an effective tax rate when dealing with a mixed use property is not as textbook accurate as when dealing with a single use property. Nevertheless, this record does provide a basis upon which the allocation of the income stream between residential and commercial property could be made. Therefore it was appropriate to capitalize the two allocated income streams by the means of residential and commercial effective rates. This then produced the indicated residential and indicated commercial portions of the golf course value. See, FINDINGS OF FACT 12, 13 & 14, supra.

The Return On and Of the Equipment was not added as an expense. Likewise, Present Value of Equipment was not added to value. These factors relate to valuing of personal property and not real property. Of course, Extra Land Value was not added, since the value of the extra land (forest land) has all ready been determined based upon its classification as agricultural grade #7 land.

With these adjustments the income approach produced the indicated true value in money of the golf course to be $1,724,905, as set forth in FINDINGS OF FACT 14, 15, 16 & 17, supra.

The utilization of the sales comparison approach to value commercial property is confronted with a number of variables and problems in any given instance. Sales of comparable properties still must be adjusted for the various differences between the subject and comparables. Many necessary adjustments will not readily find documentation and support from data which can be or is developed in the market place. The sales comparison methodology generally finds its strongest application when valuing single-family residences. When sales of income-producing properties are to be used the issue of separating the valuing of the business from the actual real property always presents a major problem.

The attempt to utilize sales of golf courses to arrive at an indicated value presents such serious problems that little weight can be given to a valuation derived from such sales. The comments and observations of Mr. McReynolds on this point are very illustrative and persuasive as to the flaws and problems of attempting to arrive at the value of an operating course based on the sales comparison approach. Several of the points made by Complainants' appraiser bear repeating in this decision. Exhibit A, p. 55. Exhibit B, Q & A 15.

This case provides a good illustration of these critical problems associated with the sales comparison approach for valuing a golf course. Both appraisers presented data on sales of golf courses. Mr. McReynolds listed sales of three courses. Mr. Roesch listed seven sales.

Neither appraiser was able to present sufficient data relating to the number of annual rounds played, the amount of greens fees or income and expense information on the sale properties. Because of the absence of such information, any subjective analysis of the rounds played, greens fees and net operating income from any of these sales as a comparison to the subject was simply not possible.

The allocation of a sale price per hole for these sales to the subject cannot be done with any degree of persuasiveness for purposes of this case in the absence of a detailed analysis of the income and expense statements for the comparable sales. This data is generally not available to the appraiser. Such critical data was not available to the appraisers in this instance on any of the ten sales reported. Without the ability to analyze the income and expense data of the sale properties, no accurate comparison can be made to the subject. Since no such analysis was done in the two sales comparison approaches, there is no weight that can be given to either approach for purposes of arriving at the fair market value of the subject.

The determination of value by Mr. Roesch was based on his sales comparison approach. Mr. McReynolds placed no significant weight on his sales comparison approach, only that it provided support for the other approaches. Accordingly, no substantial or persuasive weight has been given to the valuations derived relying on the sales comparison approach of either appraiser.

Both appraisers developed a cost approach to value. Neither appraiser placed substantial weight on the cost approach. The Hearing Officer finds neither approach of sufficient probative force to establish the fair market value of the subject golf course in the face of the valuation indicated by the income analysis. Accordingly, no weight was given to either cost approach.

The income approach developed by Respondent's appraiser did not rise to the level of substantial and persuasive evidence to establish the value of $3,645,000 for the subject golf course. Mr. Roesch performed his income approach relying upon two basic assumptions. These were that the course should be valued assuming 30,000 rounds of golf to be played per year and the price per round would be $36. The development of the income approach based upon these assumptions was not supported by sufficient evidence to establish that the subject course can operate at these levels of productivity.

The Deer Creek Country Club has never achieved the level of 30,000 rounds of golf in a year. It has never even come close to such a level of play. In 2000 there were 21,311 rounds of play. In 2001 the number of rounds dropped to 18,998. In the marketing area of the subject golf course there are too many golf courses for the amount of business available. In other words, supply exceeds demand. Exhibit D, Q & A 9, 10 & 11.

Furthermore, the cost per round at Deer Creek does not average $36 per round. The per round cost is $35 until noon on Saturdays and Sundays. However, after noon it drops to $32. During the week the per round cost drops to $29 all day, except for seniors who can play for $20 per round. Exhibit D, Q & A 12.

The income projections of 30,000 annual rounds at $36 per round were based on national averages from the National Golf Foundation. Such national averages are not appropriate for valuing the subject course, when the actual performance and history of Deer Creek provides no support to relying upon such national averages. In order for Deer Creek to support the value determined by Mr. Roesch, the gross income would have to be increased by nearly 70% over what the course was able to achieve for the 2000 season. Rounds played would have to increase by approximately 41%. There is no evidence in this record to establish that such an increased level of income could be achieved. In point of fact, the evidence established that the rounds played from 2000 to 2001 dropped by approximately 11%, instead of increasing by 41% as projected by Mr. Roesch. Exhibit A, p. 73; Exhibit D, Q & A 9.

Mr. Roesch's valuation is essentially based upon an underlying assumption that Complainants are not managing the golf course in the most efficient manner so as to maximize the profit that they could realize. This assumption finds no basis in fact within the evidentiary record.

Complainants first developed the country club to be a private enterprise. In so doing, the clubhouse was built with features which are superadequate for public golf courses. To be able to support amenities normally associated with private clubs it is necessary to have a substantial number of members who pay dues. When Deer Creek was at the height of private membership, before converting to a public golf course, there was only a membership of about 250 people paying annual dues of about $2,000 per year. This was not sufficient income to support the operation of a country club type facility at Deer Creek. Public golf courses do not require or generally have club houses that contain 30,000 square feet and have a banquet center with the supporting kitchen facilities. Exhibit B, Q & A 20; Tr. 38, Line 25 - Tr. 40, Line 1.

The history of Deer Creek establishes that it was not economically feasible to operate it as a private country club. Its financial history also shows that attempting to have food and banquet services on a regular basis was an exercise in futility from the stand point of turning a profit. If catering banquets was an income-producing activity, Complainants would certainly pursue this income stream. In like manner, if the employment of a golf professional or a professional pro shop manager was cost effective, Complainants would have employed such staff. However, Deer Creek has not shown that such activities would be financially profitable. Exhibit D, Q & A 13-18.

In order to give substantial and persuasive weight to the Roesch assumption, it would be necessary to conclude that Complainants have intentionally chosen to operate Deer Creek so as to return less on their investment than they could allegedly receive. In other words, Mr. McArthy, who was described by Counsel for Respondent as being very successful in real estate investments, as the primary manager of Deer Creek would be deliberately running an operation intended to not make the most that the market would allow. There is nothing in this record to support arriving at such a conclusion.

It is more than reasonable to presume that individuals investing money desire to obtain the largest return on their investment that is possible within the parameters of the existing and applicable economic conditions. Mr. McArthy has a number of years experience with golf courses. He has played the game for a number of years. He has observed the manner of operation of other courses. He has served on the board of directors of a private country club. He has utilized professional publications relating to the operation of golf courses. He has managed Deer Creek as owner/operator since 1989 when the course was opened, after being constructed under his supervision as general contractor. Tr. 28, Line 5 - Tr. 30, Line 17; Exhibit D, Q & A 3. The evidence provides no basis whatsoever to rely upon Mr. Roesch's assumption.

Accordingly, for all the reasons set forth and discussed above, the income approach developed by Mr. Roesch was not substantial and persuasive evidence to establish the value advocated based upon the approach.

The assessed valuations for the subject properties as determined by the Board of Equalization for Jefferson County for the subject tax day are SET ASIDE.

The assessed value for the subject property in Appeal No. 01-34016 for tax years 2001 and 2002 is set at $7,180 ($5,220 - residential; $1,960 - agricultural).

The assessed value for the subject property in Appeal No. 01-34017 for tax years 2001 and 2002 is set at $462,450 ($121,570 - residential; $2,460 - agricultural; $338,420 - commercial).

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 these appeals 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 Jefferson 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 these appeals. 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.

BROOKS & JANIS MCARTHY,	)
	)
Complainants,	)
	)
v.	)	Appeal Number 01-34-16 & 01-34017
	)
RANDY HOLMAN, ASSESSOR,	)
JEFFERSON COUNTY, MISSOURI,	)
	)
Respondent.	)