COLOR ART, INC.,	)
	)
Complainant,	)
	)
v.	)		Appeal Number 03-10083
	)
	)
PHILIP A. MUEHLHEAUSLER, ASSESSOR,	)
ST. LOUIS COUNTY, MISSOURI,	)
	)
Respondent.	)

The assessment determined by the St. Louis County Board of Equalization is hereby set aside. The Commission finds the market value for the subject personal property for the 2003 tax year to be $3,410,995 ($1,137,000 assessed).

The issue in this appeal is: What was the true value in money as of January 1, 2003, of Complainant’s tangible personal property, more specifically, what was the reasonably probable and highest price that could be commanded for the subject property in an open-market, competitive exchange with buyer and seller both acting knowledgeably and prudently?

Complainant appeals the assessment of its machinery, equipment, and other tangible personal property with the exception of its vehicles (assessed value of $29,370) and supplies (assessed value of $80 - $250/3 = $83.34, rounded to $80).

The evidentiary hearing in the above-styled appeal was held on Wednesday, January 5, 2005, before State Tax Commission Hearing Officer Aimee L. Smashey, in the Assessor’s Conference Room at the County Government Building in Clayton, Missouri. Mr. Thomas Caradonna, Attorney, represented Complainant. Ms. Paula Lemerman, Associate County Counselor, represented Respondent.

Pursuant to Section 138.431, RSMo, the appeal has been assigned to Chief Counsel R. Randall Turley, Acting as Hearing Officer, for rendering of this Decision and Order. The Hearing Officer having considered all of the evidence upon the record enters the following Decision and Order.

The subject property is located at 10300 Watson Road, St. Louis, Missouri. The property is identified by Assessor’s Account Number: M0006477A. The assessment history and proposed values for the portion of the assessment in dispute are:

Complainant submitted the following exhibits in support of its proposed valuation:

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

Exhibit B, Comparable Sales Demonstration.

Exhibit C, Written Direct Testimony of Mr. Bealmear

Respondent submitted the following exhibits in support of his proposed valuation:

Exhibit 1, Appraisal Report of Martina Ragain, Revenue Field Auditor.

Exhibit 2, Written Direct Testimony of Ms. Ragain.

1. The Assessor determined an assessed value of $2,454,510 for the business personal property and manufacturing equipment of Complainant.

2. Complainant appealed the assessment to the St. Louis County Board of Equalization. The Board affirmed the assessed value as determined by the Assessor.

3. Jurisdiction over this appeal is proper. Complainant timely filed its Complaint for Review of Assessment with the State Tax Commission, challenging the assessment on the ground of overvaluation.

4. Complainant is a commercial printer. Respondent’s Exhibit 1, p. 6. The personal property under review includes various types of office machinery, copying and printing machinery and equipment, and related equipment utilized in Complainant’s printing business. A complete detailed listing of the 1166 items of personal property under appeal was set out at pages 18 through 75 of Exhibit A.

5. Complainant’s appraiser valued the items of property based on the concept of fair market value in exchange. Complainant’s Exhibit C, pp. 6 - 8. 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).

6. Complainant’s appraiser performed the subject appraisal in conformity with the Uniform Standards of Professional Appraisal Practice (USPAP), and the Principles of Appraisal Practice and Code Ethics of the American Society of Appraisers. Complainant’s Exhibits C, p. 24, and A, p. 4.

7. 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 zeros 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 the property as, and therefore, how to approach the cost, sales comparison, and income approaches. Complainant’s appraiser valued the property under an appropriate highest and best use analysis. Exhibit A, p. 8; Exhibit C, pp. 10 – 11.

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

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. This can be applied to either an individual asset or to an entire facility. The principle applies in the cost, sales comparison, and 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.

10. Complainant’s appraiser identified the subject property by performing an inventory and inspection. Complainant’s Exhibit C, p. 7, and A, p. 7. He made inquiries to account for new acquisitions and transfers of equipment between the tax date and the inspection date. Complainant’s Exhibit A, p. 8. As part of his inventory, he observed and evaluated the condition of each item of property. Complainant’s Exhibit C, p. 9.

11. Complainant’s appraisal primarily relied upon sales and sales offerings of personal property that were the same or comparable to the subject property. The data was obtained by contacting buyers and sellers, monitoring auction sales, and contacting manufacturers and used equipment dealers. Complainant’s appraiser has a library of resource materials, which provide information about market sales of personal property, and his firm keeps a database of personal property sales, which catalogs sales by description, type of sale, location, and date. Id., pp.13 – 14; see also, p. 20 – 21. After the data was gathered, Complainant’s appraiser evaluated and compared the data and made adjustments when judged necessary. Id., p. 15. The data sources utilized in Complainant’s appraisal were those generally accepted by the appraisal community as being reliable. Id., pp. 20, 21. Complainant’s evidence produced a persuasive indication of the value of the subject property in the open market.

13. The cumulative market value of Complainant’s personal property under appeal was $3,410,995 ($1,137,000 assessed value of ) as of January 1, 2003.

14. The methodology utilized and rely upon by Respondent’s appraiser was not demonstrated to be a methodology or approach to value that is generally recognized and accepted by appraisers in the field of machinery and equipment appraisal.

The Commission has jurisdiction to hear timely appeals 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 St. Louis 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).

Market Value Standard

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.

"True value in money is defined in terms of value in exchange and not value in use." Daly v. P.D. George Co., 77 S.W.3d 645, 649 (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 report and testimony of Mr. Allen Bealmear, a machinery and equipment appraiser. Respondent offered the appraisal report and testimony of Ms. Martina Ragain, Revenue Field Auditor for the St. Louis County Assessor’s Office.

Mr. Bealmear identified the subject property by performing an inventory and inspection. He indicated in his appraisal that he made inquiries to account for new acquisitions and transfers of equipment between the tax dates and the inspection date. During the inspection, he observed and evaluated the condition of each item of property. From the inventory and inspection, a detailed item by item listing was prepared and set out in the Bealmear Appraisal Report. Exhibit A, pp. 18-75.

Complainant’s appraiser used the sales comparison approach to provide an indication of value for the individual pieces of equipment. Mr. Bealmear was able to find sales data on each item of property valued. He testified that his firm makes efforts to insure the reliability of the sources and data. His firm attempts to confirm data reliability by actual contact with the source along with utilizing sources that perform their own screening and confirmation.

Ms. Ragain also conducted a site inspection and she testified she created her own list of the property under appeal. No detailed list of the property shown to be an inventory created by the appraiser was presented in the appraisal report. The supporting documentation as to individual items of machinery and equipment in Exhibit 1 is from Complainant’s asset list, not from an inventory list created by Ms. Ragain.

Respondent’s appraiser did a sales comparison analysis on 65 items of property for which she found one or more sales or listings of property she deemed to be comparable. For the 65 items of property, Ms. Ragain subtracted the values Mr. Bealmear had determined for these items from his final conclusion of value ($1,532,790). The value, which she determined of $1,976,085 for the 65 items, was then added back to the value on all other items not acquired in 2001 and 2002, which had been valued by the Bealmear appraisal. Ms. Ragain made no adjustments to any of her sales or listing data for condition, capacity, age or any other factors related to the items of comparable machinery and equipment. She simply average sales or listing prices where she had more than one comparable sale or listing.

Ms. Ragain then subtracted $1,575,000 from the Bealmear appraisal for machinery acquired in 2002 and 2001. For the items acquired in 2001 and 2002, she did not provide any detailed list of which entries from Exhibit A were being deleted. Nor did she provide a detailed listing of these items from either her inventory list or Complainant’s asset list. To arrive at value for these assets, Ms. Ragain applied a mass appraisal technique of applying an index (to the 2001 items) to the acquisition cost and multiplying the resulting figure by a percent good to account for depreciation. No index factor was applied to the 2002 acquisition. The depreciation factors for the two years acquisitions were obtained from Marshall Valuation Service.

Ms. Ragain took the acquisition cost for an item identified as "Co-Cure for KBA 64" of $682,000, on February 1, 2002 and applied the Marshal Valuation depreciation of 93% good to value the only item of property alleged to have been acquired in 2002. The appraiser was questioned at length on this valuation. Tr. 124, Line 24 – Tr. 132, Line 11. The cross-examination established the appraiser was not aware of what the Co-Cure for KBA 64 was or what elements made up the $682,000. Furthermore, it was established that the KBA 64 is an item of leased property and was so noted on Complainant’s asset list. Exhibit 4 to Exhibit 1, p. 4 of Asset List.

Since Respondent’s appraiser elected to include the value of the alleged 2002 acquisition, it was incumbent upon the appraiser to conduct the necessary and appropriate investigation to determine if in fact the 2002 acquisition was an addition to leased property, which thereby was not owned by Complainant. If such was the case it would not be valued in this appeal. The testimony of Ms. Ragain fails to establish what the Co-Cure was and that the Co-Cure was an item of Complainant’s personal property. Therefore, the addition of a depreciate amount for this item was not proper in this appeal.

Ms. Ragain does not provide any listing of items, either from the list, which she testified she constructed, or from the asset list, which was provided as an exhibit to her appraisal report, to identify what items were removed from the Bealmear appraisal. Therefore, there is no way to verify that the deletions from the Bealmear report totaled $1,575,000. It is unknown, from reading the Ragain appraisal (pp. 11-12) exactly how many items of machinery and equipment, as listed on either Ms. Ragain’s own list, or the asset list in her report, are involved in this method of valuation. There is no way to check whether the total acquisition cost for the unknown items used by the appraiser was in fact $2,087,219 as reported and used for development of this opinion of value

Although, Respondent’s appraiser characterizes her valuation as the cost approach, in reality this is a mass valuation methodology. The appraiser admitted under cross-examination, that she did not attempt to obtain any cost new data and did not make any specific analysis as to the three recognized forms of depreciation or obsolescence. It was also admitted, no market research was done. The appraiser simply relied upon the Marshall Valuation rates. Tr. 133, Line 11 – Tr. 134, Line 6. This methodology does not carry the persuasive weight of market research on what sales from user to user demonstrates, as is the basis for Complainant’s appraisal.

With the exception of the 2002 and 2001 acquisitions, which have just been addressed, the only difference of opinion on value in this appeal relates to the 65 items Ms. Ragain selected to perform her sales comparison analysis. Respondent’s appraiser in effect endorses the expertise of Complainant’s appraiser in the valuation of nearly 95% of the items to be appraised. As to the 2001 acquisitions, Ms. Ragain did not dispute the market data, which was the basis for Mr. Bealmear’s valuation of the unknown number of items acquired in 2001. She simply opted to perform a mass valuation on these items essentially based on only depreciating on an age-life basis and not accounting for the appropriate market of used machinery and equipment from user to user.

As between the two appraisers, Mr. Bealmear possesses superior training, experience and expertise to offer an opinion of value developed from a sales comparison for which adjustments were made based upon the appraiser’s training and experience. Exhibit C, pp. 15 – 16; Exhibit A, p. 11. Furthermore, the methodology employed by Ms. Ragain of selecting a limited number of items for valuation, while essentially adopting the opinion of value of another appraiser was not shown to be a methodology generally accepted in the appraisal field. Tr. 199, Line 17 – Tr. 201, Line 15.

Upon review of the testimony and evidence submitted, the opinion evidence offered by Complainant’s appraiser persuades this Hearing Officer. Complainant’s evidence evaluates the marketplace, market supply and demand elements, sales of like or similar equipment, and calculates the machinery and 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. Accordingly, this Hearing Officer concludes that Complainant’s evidence is sufficient to rebut the presumption in favor of the assessment determined by the St. Louis County Board of Equalization and is substantial and persuasive in support of Complainant’s proposed market value.

The assessed valuation for the subject property as determined by the St. Louis County Board of Equalization for the subject tax day is SET ASIDE. The assessed valuation for the subject personal property for the 2003 tax year is hereby set at $1,137,000 (assessed value of $29,370 for vehicles and $80 for supplies is not included in this amount).

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 2000.

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 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 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 May 25, 2005.

STATE TAX COMMISSION OF MISSOURI

R. Randall Turley

Chief Counsel