ORDER NUNC PRO TUNC

The Decision and Order issued herein on November 10, 2004, is hereby corrected nunc pro tunc, as follows:

1. On page 1, the caption Nestle USA, Inc. is stricken, and Nestle Purina PetCare Company is inserted in lieu thereof.

2. On page 1 under HOLDING, first paragraph, second sentence, the figure 2002 is stricken and the figure 2003 is inserted in lieu thereof.

3. On page 1 under HOLDING, in the box on said page, the appeal number 02-45011 is stricken and appeal number 03-45011 is inserted in lieu thereof; and the appeal number 02-45012 is stricken and the appeal number 03-45012 is inserted in lieu thereof.

4. On page 2 under SUMMARY, second sentence, the appeal number 02-45011 is stricken and the appeal number 03-45011 is inserted in lieu thereof; and in the fourth sentence, the appeal number 02-45012 is stricken and the appeal number 03-45012 is inserted in lieu thereof.

5. On page 3 under FINDINGS OF FACT 2, the appeal number 02-45011 is stricken and the appeal number 03-45011 is inserted in lieu thereof; and on page 4, the fifth line (first sentence of paragraph two of Finding of Fact 2, the appeal number 02-45012 is stricken and the appeal number 03-45012 is inserted in lieu thereof.

In all other respects the Decision and Order is affirmed as written.

SO ORDERED November 12, 2004.

STATE TAX COMMISSION OF MISSOURI

R. Randall Turley

Chief Counsel

NESTLE USA, INC.,	)
	)
Complainant,	)
	)
v.	)		Appeals Number 03-45011 and 03-45012
	)
SCOT VANMETER, ASSESSOR,	)
BUCHANAN COUNTY, MISSOURI,	)
	)
Respondent.	)

The Decision of the Buchanan County Board of Equalization sustaining the assessment made by the Assessor is hereby set aside. The Commission finds the market value and corresponding assessed value for the subject personal property for tax year 2002 to be:

These appeals were heard and this Decision is rendered by Hearing Officer Aimee L. Smashey. Complainant appeared by Counsel, William J. Falk, St. Louis, Missouri. Respondent appeared by Counsel, Pamela L. Cone, St. Joseph, Missouri.

ISSUE

The issue in each appeal is: What was the true value in money as of January 1, 2003, of Complainant=s machinery and equipment, specifically, what is the most probable price that could be commanded for the machinery and equipment in an open-market, competitive exchange with buyer and seller both acting knowledgeably and prudently?

Complainant appeals the decisions of the Buchanan County Board of Equalization, which sustained the valuations of the subject properties. At the Packers Avenue Facility (STC appeal No. 02-45011), the Assessor determined an appraised value of $16,560,270, and assessed value of $5,520,090, for the subject personal property. Complainant proposed a market value of $4,935,660, and assessed value of $1,645,220. At the Lower Lake Road facility (STC appeal No. 02-45012), the Assessor determined an appraised value of $12,049,560, and assessed value of $4,016,520, for the subject personal property. Complainant proposed a market value of $7,978,000, and assessed value of $2,659,330.

A hearing was conducted on August 18, 2004, at the Buchanan County Courthouse, St. Joseph, Missouri.

Complainant offered into evidence the appraisal reports for both locations (Complainant=s Exhibit A-11 and A-12), the written direct testimony (Complainant=s Exhibit B) of Douglas R. Krieser, and an appraisal adjustment memo for the appraisal of the Packer Avenue property. Complainant=s Exhibit C. The exhibits were received into evidence.

Respondent offered the following exhibits:

Exhibit 1-11 - Copy of the first page of Complainant=s 2003 Business Personal Property Tax Declaration form for the Packer Avenue Facility;

Exhibit 1-12 - Copy of the first page of Complainant=s 2003 Business Personal Property Tax Declaration form for the Lower Lake Facility;

Exhibit 2 - Written Direct Testimony of Larry W. Jones.

Pursuant to Commission order dated August 10, 2004, Exhibits 1-11 and 1-12 were excluded from evidence upon objection by Complainant, and objections to Question and Answer 12 of Exhibit 2 were sustained.

The Hearing Officer received into evidence Exhibits X-11 and X-12 over the objection of Complainant. Exhibit X-11 is a copy of Complainant=s 2003 Business Personal Property Tax Declaration form for the Packer Avenue Facility; and Exhibit X-12 is a copy of Complainant=s 2003 Business Personal Property Tax Declaration form for the Lower Lake Facility;

The exhibits were received into evidence.

1. Jurisdiction over these appeals is proper. Complainant timely appealed to the State Tax Commission from the decision of the Buchanan County Board of Equalization.

2. The machinery and equipment which is the subject of Appeal No. 02-45011, Nestle USA, Inc., Personal Property Account No. 36040 (Packer Avenue Facility) is used to

produce a variety of Fancy Feast brand soft cat foods in 3-ounce cans. Exhibit B, at 7. The machinery and equipment at this facility includes: blending silos scale systems, cooker mixers, rotary piston fillers, can seamers, a retort feed and unload system, a full can conveyor, tray packers, palletizers, case packers, and a shrink wrapper.

The machinery and equipment which is the subject of Appeal No. 02-45012, Nestle USA, Inc., Personal Property Account No. 36039, (Lower Lake Road Facility) is used to produce a produce a variety of Friskies brand soft cat foods in 5.5-ounce cans Exhibit B, at 6. Up until the middle of 2002, this facility also produced a variety of dry (bagged) cat and dog food products. This product line was removed from this facility due to consolidation and to make more room for warehouse space within the plant. In March 2004, Nestle ceased all production at the Lower Lake Road facility. Nestle is currently in the process of dismantling the equipment for shipment to other facilities or for sale Id. The machinery and equipment at this facility includes: a frozen meat pre-breaker system, a grinding system, silo systems, a mixing system, a dry ingredients mixing and blending system, cookers, rotary piston fillers, can seamers, conveyors, a hydrostatic cooker, stainless steel tanks, a formulation system, a flavor enhancement/dry ingredient system, dryfood storage systems, dryfood processing systems, application systems, storage and distribution systems, filling and packaging lines, casing systems, palletizers, stretch wrappers, a Modicon work station, a server, and a grain receiving and storage system.

3. Complainant=s appraiser valued the items of property in each appeal based on the concept of fair market value in exchange. Complainant=s Exhibits A-11, at 1 & 2; A-12, at 1 & 2; and B, at 11-12. This is the appropriate concept of value to be applied in the valuation of the subject property. Daly v. P.D. George Co., 77 S.W.3d 645 (Mo. App. E.D. 2002).

4. Complainant=s appraiser performed the subject appraisals in conformity with the Uniform Standards of Professional Appraisal Practice (USPAP), and the Principles of Appraisal Practice and Code of Ethics of the American Society of Appraisers. Complainant=s Exhibits A-11, at 1; A-12, at 1; and B, at 29.

5. A market value appraisal inherently requires a highest and best use analysis. A highest and best use analysis is the mechanism in an appraisal that zeroes in on (1) the lawful, feasible use of the property that will produce the highest return in an exchange; and (2) whether there is sufficient demand to make such an exchange probable. This analysis shows the appraiser what to appraise it as, and therefore, how to approach the cost, sales comparison, and income approaches. Complainant=s appraiser performed a highest and best use analysis for this appraisal problem. Exhibit A-11, at 18-19; Exhibit A-12, at 18-19; Exhibit B, at 13-14.

6. The market for used food processing and packaging equipment has been depressed, but stable for the past one to one and a half years, prior to that, the market had a significant downturn in terms of both volume and prices. The reasons for the stable, yet depressed marketplace are general economic uncertainty, consolidation activity among several major suppliers creating an oversupply of equipment and fewer producers, and a decrease in demand from foreign markets. Complainant=s Exhibit A-11 and A-12, at 7; Exhibit B at 22-24.

7. The production at the Lower Lake Road facility decreased in 2002 due to elimination of the dry cat and dog food product lines. The product lines were eliminated due to consolidation and to make room for on-site warehouse space. Complainant=s Exhibit B, at 6, Complainant=s Exhibits A-11 and A-12, at 9.

The equipment from the various dry production processes was disposed of in a number of ways:

1. Dismantled and scrapped;

2. Transferred to other Nestle Purina facilities outside the state;

3. Sold to other end users and dealers; and

4. Stored for future disposition.

Complainant=s Exhibits A-11 and A-12, at 11.

8. The equipment from the wet process production lines can be divided into two categories. >Core equipment= such as fillers, seamers, and generic cooking equipment, can be used for a number of products and has value in the secondary market. Exhibit A-11 and A-12, at 7. It is regularly traded in the used machinery and equipment market. Exhibit B, at 10. >Peripheral equipment= such as conveyors, silos, hoppers, and specialized filling or packaging equipment, no longer sells well in the secondary market. Buyers usually opt for new equipment rather than incur a significant expense for modification, transportation, and installation of used equipment. Exhibit A-11 and A-12, at 7; Exhibit B, at 24-25.

9. There was no market data presented that would indicate a demand for the machinery and equipment as assembled and in place at the subject sites.

10. 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. This 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, Machinery and Technical Specialties Committee of the American Society of Appraisers, 2000, pp. 45, 115; Appraising Machinery and Equipment, Machinery and Equipment Textbook Committee of the American Society of Appraisers, John Alico, Editor, 1989, p. 81.

11. Complainant=s appraiser, and three appraisal colleagues under his supervision, performed an inspection of all the personal property present at the subject locations on the inspection dates of January 13 through January 15, 2003. Exhibits A-11 and A-12, at 2; Exhibit B, at 8. The appraisal team personally observed all of the personal property in question, with the exception of a few tanker truck which being utilized to transport raw supplies from suppliers to facilities in St. Louis. Exhibit B, at 8-9. Property at the Packers Avenue and Lower Lake Road facilities, as well as property stored at the Pear Street and K Highway warehouses was inspected by the appraisal team. Exhibit B, at 8.

12. Complainant=s appraisals primarily relied upon the selling prices of matching or comparable machinery and equipment from the used machinery and equipment market. Where such data was unavailable, the Complainant=s appraiser relied on the indicated value under the cost approach. The condition ratings, appraisal approaches, and data sources utilized in the appraisals were those generally accepted by the appraisal community as being reliable. Complainant=s evidence provided the best indication of the worth of the subject property in the open market.

13. The cumulative market value of Complainant=s personal property located at the Packers Avenue Facility (Appeal No. 03-45011) in Buchanan County was $4,935,660 (assessed value of $1,645,220) as of January 1, 2003.

14. The cumulative market value of Complainant=s personal property located at the Lower Lake Road Facility (Appeal No. 03-45012) in Buchanan County was $7,978,000 (assessed value of $2,659,330) as of January 1, 2003.

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.

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

Section 137.115, RSMo 1994, requires that property be assessed based upon its true value in money which is defined as the price a property would bring when offered for sale by one willing or desirous to sell and bought by one who is willing or desirous to purchase but who is not compelled to do so. Mo. Const. Art X, Section 4(b) (1945, amended 1982); St. Joe Minerals Corp. v. State Tax Commission, 854 S.W.2d 526, 529 (Mo. App. E.D. 1993); Missouri Baptist Children=s Home v. State Tax Commission, 867 S.W.2d 510, 512 (Mo. banc 1993). It is the fair market value of the subject property on the valuation date. Hermel, supra, at 897.

AMarket value@ is defined as A...[t]he most probable price which a property would bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby:

a. buyer and seller are typically motivated;

both parties are well informed or well advised, and acting in what they consider their best interests;

c. a reasonable time is allowed for exposure in the open market;

d. payment is made in terms of cash in United States dollars or in terms of financial arrangements comparable thereto; and

e. the price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale."

Federal Register, vol. 55, no. 163, August 22, 1990, pages 34228 and 34229; also quoted in the Definitions section of the Uniform Standards of Professional Appraisal Practice, 1996 ed. Exhibits A-11 and A-12, at 2.

AValue in exchange@ or Aexchange value@ is defined as "[t]he value of a commodity in terms of money to persons generally, as distinguished from use value to a specific person." (The Dictionary of Real Estate Appraisal, Third Edition, Appraisal Institute, 1993, at 125.) AValue in use@ or Ause value@ is defined as Athe value a specific property has for a specific use@ (Ibid., at 383) and Athe value of property which reflects a value to a specific user, recognizing the extent to which the property contributes to the personal requirements of the owner." (The Appraisal of Personal Property, American Society of Appraisers, 1994 at 2).

An exchange value is an objective value determined by transactions between buyers and sellers in the open market. A use value is a subjective value of an owner, user, or potential owner based solely upon his or her personal needs for the property. By definition then, market value is the value determined by the exchange of property between an informed seller and an informed buyer after exposure in the open market and not a subjective opinion of some individual or entity. However, there is a distinction between a value in use to a specific user and a value recognized by a group of informed potential buyers that a property has for a specific use. The latter should be fully considered under a market value appraisal. Further, if there is sufficient demand for the property for the use to which it is being put by the owner, exchange value can be equivalent to the use value to the owner. The market value standard does not require appraisers to discard transactions or market demand for assembled machinery and equipment just because the market finds the property valuable for the same use that it is being put to by the owner. Such evidence should be fully considered in a market value appraisal. Conversely, if there is no evidence that there is demand for machinery and equipment assembled and in place, it would be inappropriate to value the property as assembled and in place since such valuation would not be indicative of a market value in exchange. See, Daly v. P.D. George, 2002 WL 553712 (Mo. App. E.D. 2002).

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, 2002. Hermel, supra, at 897. Substantial evidence can be defined as such relevant evidence as a reasonable mind might accept as adequate to support a conclusion. See, Cupples-Hesse Corporation v. State Tax Commission, 329 S.W.2d 696, 702 (Mo. 1959). Persuasive evidence is that evidence which has sufficient weight and probative value to convince the trier of fact. The persuasiveness of evidence does not depend on the quantity or amount thereof but on its effect in inducing belief. Brooks v. General Motors Assembly Division, 527 S.W.2d 50, 53 (Mo. App. 1975).

The trier of fact has the duty to evaluate the evidence presented to determine its sufficiency and persuasiveness in establishing market value. Complainant offered the appraisal reports of Mr. Douglas R. Krieser, a machinery and equipment appraiser. Mr. Krieser and his staff inventoried and inspected the machinery and equipment at the subject sites. Complainant=s Exhibit B, at 8-9; Exhibit A-11-A, pp. 1-19; Exhibit B-12-A, pp. 1-27. As part of their inventory, they ascertained which equipment had been added or removed between the tax date and the date of their inspection and inventory, made inspection of removed equipment that was stored nearby, and made the appropriate deductions or additions for such equipment. Exhibit B, at 9. Complainant=s appraisals were performed based upon a fair market value standard. Complainant=s Exhibits A-11, at 2; A-12, at 2; and B, at 11-12. Mr. Krieser and his staff researched the current U.S. pet food market and the current food processing and packaging equipment market. Exhibits A-11, at 4 - 7; A-12, at 4 - 7. They noted that the equipment from the removed product line at the Lower Lake Road facility was sold as individual pieces of equipment, transferred, stored, or scrapped. Complainant=s Exhibits A-7, at 11. There was no market data to suggest that such property would likely sell as assembled in place. With reliance on this information, the appraiser concluded that the subject property should be valued as individual pieces of standard machinery and equipment available in the used equipment market. Exhibits A-11 and A-12, at 19; and B, at 12 - 13. In valuing the machinery and equipment, Complainant=s appraiser utilized methodologies that are deemed reliable by the appraisal community, placing primary reliance on the sales comparison approach. Exhibit B, at 26. Complainant=s appraiser used sources for his appraisal data that are generally accepted in the appraisal community as reliable. Exhibit B, at 26 - 27.

Complainant=s appraiser and the three members of his appraisal team possess extensive education, training and experience that qualifies them as experts for the purpose of offering an opinion of value in the present appeals. Exhibits A-11-F and A-12-F; Exhibit B, at 2-5. Mr. Krieser in both his written and oral testimony (Tr. 3-22) demonstrated his extensive knowledge of the appraisal process required when valuing machinery and equipment in a manufacturing concern. The responses provided by Mr. Krieser during cross-examination established that he was extremely well prepared to answer the various inquiries relating to his procedures in valuing the various items of machinery and equipment about which he was asked. The answers given were direct, concise and further demonstrated the excellent work and professional qualifications and demeanor of this appraiser.

Mr. Krieser=s direct testimony gave additional clarification as to the research, procedures and methodologies which were brought to bear in this appraisal problem. Although these matters were addressed in the body of each appraisal report, the written direct testimony provided further explanation as to critical elements in the valuation process. The elements explained included highest and best use analysis, consideration of value in use/in place versus value in exchange, basis for relying on cost and sales comparison approaches, investigation and verification of the sales data from various sources; steps taken in arriving at indicated values relying on sales, process of addressing depreciation and obsolescence issues in the cost approach and the reconciliation to arrive at final value.

Complainant=s appraiser arrived at conclusions of value for the subject properties based upon appraisal approaches that are recognized within the machinery and equipment appraisal community. Furthermore, the approaches relied upon are accepted and used by courts, tax tribunals and administrative agencies, including the Commission. Mr. Krieser=s approaches to value were well supported by data and sources that are generally accepted in the appraisal community as reliable. The appraisal reports developed by Mr. Krieser were in conformity and accordance with the Uniform Standards of Professional Appraisal Practice.

Complainant’s appraisal testimony is a noteworthy example of how to instill confidence and to persuade regarding one’s value opinion. In his testimony, Mr. Krieser, demonstrated a diligence concerning (1) the inspection and identification of the property, and (2) the verification and validation of his market data and sourcing. He showed a thorough command of and understanding of relevant market data. His appraised value was driven by such data. Finally, and perhaps most rare, his responses during cross-examination were direct, concise, informative, and lacked evasiveness, which demonstrates a contagious confidence.

Larry W. Jones, appraiser, testified that Respondent relied on the acquisition costs and acquisition years reported by Complainant in its Business Personal Property Tax Declaration and adjusted such costs for depreciation. Tr. 31, Line 23 - Tr. 32, Line 5; Exhibit 2, pp. 3-4. The testimony of Mr. Jones (Exhibit B, and Tr. 23 - 37) and Exhibits X-11 and X-12 provide no information, data or opinion upon which a determination of fair market value can be determined or based. Accordingly, there is no evidence upon this record to support the assessors original valuations for these properties and the values which the Board sustained.

Upon review of the testimony and evidence submitted, this Hearing Officer is persuaded by the opinion evidence offered by Complainant’s appraiser. Complainant=s appraisal evidence evaluates the marketplace, market supply and demand elements, sales of like or similar equipment and calculates equipment values based upon the most comparable market data. Complainant=s evidence provides a persuasive indication of how and at what price the subject machinery and equipment would sell. Complainant=s evidence is substantial and persuasive in support of the proposed market values. Complainant=s evidence was sufficient to rebut the presumption in favor of the assessment sustained by the Buchanan County Board of Equalization.

ORDER

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

The assessed valuation for the subject personal property in appeal 03-45011 for the 2003 tax year is hereby set at $1,645,220.

The assessed valuation for the subject personal property in appeal 03-45012 for the 2003 tax year is hereby set at $2,659,330.

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 Buchanan 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.

SO ORDERED November 10, 2004.

STATE TAX COMMISSION OF MISSOURI

Aimee L. Smashey

Hearing Officer