State Tax Commission of Missouri

FORD MOTOR COMPANY, )

)

Complainant, )

)

v. ) Appeals Number 03-32000 thru 03-32005

)

CATHY RINEHART, ASSESSOR, )

CLAY COUNTY, MISSOURI, )

)

Respondent. )

ORDER

SETTING ASIDE HEARING OFFICER DECISION

AND AFFIRMING BOARD OF EQUALIZATION

HOLDING

Upon review of the entire record, the Commission sets aside the Hearing Officer Decision and affirms the decision of the Board of Equalization setting value at $69,779,000 (assessed value $22,329,280). The Findings of Fact, Conclusions of Law, Decision and Order of the Hearing Officer are incorporated by reference herein as fully as if set out verbatim hereat.

HISTORY

Hearing Officer Luann Johnson entered her Decision and Order (Decision) setting value for the subject real property at $83,742,550 (assessed value $26,797,620) as proposed by Respondent at hearing.

Complainant timely filed its Application for Review of the Decision. Respondent timely filed her Response.

ALLEGATIONS OF ERROR

Complainant asserted the Decision to be (1) contrary to the weight of the evidence on the whole record; (2) unsupported by competent and substantial evidence upon the whole record; (3) contrary to the law applicable to such appeals; and (4) the result of an abuse of discretion on the part of the Hearing Officer.

In support of these various grounds, Complainant argues:

(1) The Hearing Officer’s citation to Snider v. Casino Aztar/Aztar Missouri Gaming Corp., 156 S.W.3d 341 (Mo. 2005) “leads a reader to infer that the Hearing Officer considers the subject property to be a special use property.” The evidence does not support a finding that the subject property is a special use property and, thus, the Hearing Officer’s Finding of Fact No. 11 is incorrect.

Finding of Fact No. 11 states: “The sales comparison approach is not a reliable method to value the subject parcels.” While it is true that Snider v. Casino Aztar involved a special use property, it also discussed when the use of a sales comparison approach was feasible: i.e. when sales are reasonably related in time and distance and involve land comparable in character; and when there is an active market for the type of property at issue such that sufficient data is available to make a comparative analysis. See Conclusion of Law.

The Hearing Officer discussed the problems with Complainant’s sales approach on pages 18 through 20 of her decision. The sales Complainant’s appraiser used were remote in time and location and were not substantially similar in size to the subject property. After analyzing the problems with Complainant’s sale approach, the Hearing Officer determined that the market for properties similar to the subject property is simply not active enough to accurately determine value under a sales comparison approach. It is not the characterization of a property as “industrial” vs. “special use” which makes an approach reasonable or unreasonable but, rather, whether there is sufficient market data available to make the approach reliable. The Hearing Officer’s finding that the sales comparison approach was not a reliable method of valuing the subject property was supported throughout her discussion of Complainant’s proposed comparable sales.

(2) The Hearing Officer erred in finding that the sales comparison approach was not applicable when both appraisers testified that it was. It is ludicrous to allow this Hearing Officer to substitute her judgment in appraisal matters for that of practicing, professional, licensed and qualified appraisers.

The Hearing Officer did not find that the sales comparison approach was “not applicable.” Rather, she found that it was “not reliable.” See Finding of Fact No. 11. The proper methods of valuation and assessment of property are delegated to the Commission. C&D Investment Co. v. Bestor, 624 S.W.2d 835 (Mo. banc 1981). The Commission is vested with discretion to choose the proper valuation method. Aspenhof Corp. v. State Tax Commission, 786 S.W.2d 867 (Mo. E.D. 1990). The Commission shall correct any assessment which is shown to be unlawful, unfair, arbitrary or capricious. Mo. Const., Art. X, Section 14, Section 138.430, RSMo.

Thus, while appraisers may testify as to the proper method for valuing property, it is the Commission that must determines the appropriate methodology. Likewise, the Commission determines the weight to be given to an expert’s opinion:

“The rules governing opinion and expert testimony are well settled. The testimony of an expert is to be considered like any other testimony, is to be tried by the same test, and receives just so much weight and credit as the jury or judge may deem it entitled to when viewed in connection with all other circumstances. There is no logical distinction between expert opinion testimony and fact testimony and the values of both are to be measured by precisely the same standards. A judge, as the trier of fact, has the authority to weigh the evidence and 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.” Beardsley v. Beardsley, 819 S.W.2d 400, 403 (Mo. App. 1991). Appraisers are merely witnesses. Their role is to present market value evidence to the Commission. Their title gives them an opportunity to appear before the Commission but their credibility must be judged by the quality of their proposed evidence.

(3) This Hearing Officer’s Decision is in direct opposition to another Hearing Officer’s Decision regarding what makes comparable sales reasonably related in time and distance and involving land comparable in character.

It is generally not useful to compare evidence in one contested case with evidence in a simultaneous contested case involving different facts, different parties and different properties.

(4) The Hearing Officer “did not trouble herself to review the entire record prior to issuing her decision” inasmuch as if she had she would have noticed that Respondent had withdrawn her Motion to Dismiss on jurisdictional grounds and Complainant had provided the information previously requested by the Hearing Officer. . . Such a lack of attention to the record is surely an abuse of discretion on the part of the Hearing Officer and leaves the parties, or at least the Complainant, to wonder what other segments of the record the Hearing Officer failed to review or conveniently chose to ignore.

The Commission file indicates that the Hearing Officer submitted her Decision on May 5, 2005. Complainant’s letter clarifying the square footage of the Truck Paint Shop was not received by the Commission until May 6, 2005. Respondent’s Withdrawal of her Motion to Dismiss was not received by the Commission until May 12, 2005. The Hearing Officer reviewed the entire record that was available to her at the time of the writing of the Decision. Failure to consider these two documents is not an abuse of discretion and does not change the outcome of the Decision.

(5) The Hearing Officer states, in error, that Complainant’s Cost Approach is flawed because it failed to include Entrepreneurial Profit when, in fact, there was no entrepreneurial profit to include. In actuality, after all depreciation is subtracted, there is an entrepreneurial loss.

The Hearing Officer correctly stated that the cost approach requires inclusion of entrepreneurial profit. Entrepreneurial profit is an addition to the cost to construct a property, calculated as of the time of the construction of the property and added to the value of the property. It is the “entrepreneur’s compensation for the risk and expertise associated with development.” Entrepreneurial profit occurs at the time of construction of the property – not at the time of sale. Thus, while depreciation from all sources may ultimately create what Complainant is loosely describing as an “entrepreneurial loss” at the time when the property is sold, this depreciation does not obviate the requirement that an entrepreneurial profit is added to the costs before accrued depreciation is calculated.

(6) The Hearing Officer erred in finding that Respondent’s appraiser had correctly handled superadequacy inasmuch as Respondent’s appraiser failed to capitalize the alleged additional costs of the superadequate portion of the buildings.

A review of both appraisers’ testimony shows that no evidence was presented, by either appraiser, to establish the additional cost of heating and cooling these additional spaces. However, notwithstanding a lack of evidence, it was error for the Hearing Officer to fail to take additional costs into consideration when reaching her determination of value. Because these costs necessarily exist and because neither appraiser has adequately addressed these additional costs, we find that the value which most accurately considers all factors inherent in the valuation of this property, and allows for a deduction for superadequacy, is the value established by the Board of Equalization, i.e., $69,779,000.

(7) The Hearing Officer erred in finding that Complainant’s cost approached failed to include fixtures such as light poles and underground tanks. Complainant’s appraiser testified that he included in his appraisal only those items which he considered to be real property. If he did not include an item, it was because he considered it to be personal property. These are judgments of a trained professional appraiser with over thirty years experience in valuing real and personal property. For the Hearing Officer to contradict those judgments without any evidence to the contrary is sheer folly.

It is erroneous for Complainant to assert that there was no evidence in record supporting a conclusion that light poles and underground tanks were fixtures. Respondent’s appraiser identified both as fixtures. There can be no question that these items were annexed to the reality and adapted to the use to which the realty is devoted. While Complainant is correct in asserting that we do not know the third prong of the test, i.e., intent of the annexor, we do know that it is usually the intent of an annexor to treat light poles and underground tanks as fixtures. Where there is a valid question as to the proper classification of improvements, it is incumbent upon the appraiser to address the question, which this appraiser has failed to do.

(8) The Hearing Officer failed to exclude Respondent’s Exhibits 1 and 2 on the grounds that Respondent’s appraiser failed to meet the competency requirements of the USPAP standards.

These objections were addressed by the Hearing Officer in her ruling of January 7, 2005, and were again addressed at the hearing. The Hearing Officer ruled against Complainant in its prehearing motion and its motion on the record.

The Hearing Officer correctly stated that the Tax Commission is not the agency which establishes USPAP standards or enforces those standards. The Commission recognizes USPAP as being important guidelines for consumer protection and setting appraisal standards. The Commission also recognizes that appraisers have a property interest in maintaining their licenses to practice in the appraisal field. A finding that an appraiser has failed to comply with USPAP standards is grounds for revoking an appraiser’s license to practice, but a property interest cannot be taken away from an individual without a due process hearing. The legislature, in its wisdom, has designated the Missouri Real Estate Appraisal Commission, not the State Tax Commission as the board which controls the licensing of appraisers and has vested that agency with the authority to hold due process hearings on violations of USPAP, prior to withdrawing an individual’s right to appraise property.

(9) Based on the entire record in this case, and on this Application for Review, it is clear that Complainant’s evidence is vastly superior to Respondent’s evidence. If Complainant’s evidence was insufficient to meet the required burden of proof, then the Hearing Officer should have ruled on the appeal at the conclusion of Complainant’s case in chief. Not having done so, the burden shifted to Respondent to prove its case. Any unbiased reading of the whole record in these appeals, and this Application For Review, leads to the conclusion that Respondent’s evidence was insufficient and, for various reasons stated herein, of no probative value. This leaves Complainant’s evidence as the only evidence of value before the Commission.

Complainant cites no law for the proposition that the Hearing Officer is required to making a finding of the adequacy of Complainant’s evidence at the close of that evidence. Indeed, the law requires the Hearing Officer to make written findings of fact, a feat which cannot be accomplished on the record in the middle of a complex proceeding. The fact that no such finding was made during the course of the proceeding in no way validates Complainant’s proposed value or shifts the burden of proof.

RESTATEMENT OF APPLICABLE LAW

Complainant’s Application for Review suggests a misunderstanding of numerous laws. The applicable laws are summarized here:

As To Burden of Proof

Under Mo. Const., Article X, Section 14, the state tax commission corrects “any assessment which is shown to be unlawful, unfair, arbitrary or capricious.” Thus, in order to prevail, the taxpayer must establish that the decision of the board of equalization falls into one of the above four categories. If a taxpayer fails to make the required showing, it will not prevail, regardless of the amount of evidence - or lack of evidence - presented by the county.

In Westwood Partnership v. Gogarty, 103 S.W.3d 152 (Mo. App. E.D. 2003), the court of appeals stated:

There is no longer an automatic presumption regarding the correctness of an assessor's valuation. Section 138.431.3. This statutory change from the previous situation in which the assessor's valuation was presumed to be correct does not mean that there is now a presumption in favor of taxpayer. The taxpayer in a Commission tax appeal still bears the burden of proof and must show by a preponderance of the evidence that the property was improperly classified or valued. Industrial Development Authority of Kansas City v. State Tax Commission of Missouri, 804 S.W.2d 387, 392 (Mo. App.1991).

In Reeves v. Snider, 115 S.W.3d 375 (Mo. App. S.D. 2003), the court of appeals described the taxpayer's burden as follows:

Taxpayers were the moving parties seeking affirmative relief, and as such, they bore the burden of proving the vital elements of their case, i.e., the assessments were "unlawful, unfair, improper, arbitrary or capricious.” Cupples Hesse Corp. v. State Tax Comm'n, 329 S.W.2d 696, 702 (Mo.1959); Westwood P'ship v. Gogarty, 103 S.W.3d 152, 161[8] (Mo. App. 2003); 84 C.J.S. Taxation §§710, 726. This is true regardless of the existence or non-existence of the challenged presumption. As the Supreme Court of Missouri explained, "even were we to hold that it [the presumption] has been overcome, the burden of proof on the facts and inferences would still remain on petitioner, for it is the moving party seeking affirmative relief.” Cupples, 329 S.W.2d at 702[16].

To prevail, Taxpayers had to "present an opinion of market value and then ... present substantial and persuasive evidence that the proposed value is indicative of the market value of the subject property on tax day." Daly v. P.D. George Co., 77 S.W.3d 645, 651 (Mo. App. 2002); Nance v. State Tax Commission of Missouri, 18 S.W.3d 611 (W.D. 2000).

Notwithstanding the question of the existence or non-existence of a presumption in favor of the Assessor, a presumption still remains in favor of the Board of Equalization. Because of the available presumptions, the Commission is not required to first determine the evidentiary basis for the Board’s valuation, even if that basis was of dubious validity. Hercules, Inc. v. State Tax Commission, 787 S.W.2d 739 (E.D. 1989).

Thus, all law agrees that the taxpayer will not prevail if it fails to prove that the Board’s decision was unlawful, unfair, arbitrary or capricious.

As to Methodology

The State Tax Commission is the administrative agency, appointed by the Governor and approved by the General Assembly, to deal with the specialized field of property tax valuation. State ex rel Cassilly v. Riney, 576 S.W.2d 325 (Mo. banc 1979).

The proper methods of valuation and assessment of property are delegated to the Commission. C&D Investment Co. v. Bestor, 624 S.W.2d 835 (Mo. banc 1981). The Commission is vested with discretion to choose the proper valuation method. Aspenhof Corp. v. State Tax Commission, 786 S.W.2d 867 (Mo. E.D. 1990).

The Commission shall correct any assessment which is shown to be unlawful, unfair, arbitrary or capricious. Mo. Const., Art. X, Section 14, Section 138.430, RSMo.

Thus, it is the Commission who determines the proper methods for valuing property – not private appraisers hired by the parties. While the Commission operates as an impartial trier of fact, it is not required to ignore errors made by private appraisers in applying recognized appraisal methodologies.

As to Experts

An expert’s opinion must be founded upon substantial information, not mere conjecture or speculation, and there must be a rational basis for the opinion. Missouri Pipeline Co. v. Wilmes, 898 S.W.2d 682, 687 (Mo. App. E.D. 1995). The state tax commission cannot ignore a lack of support in the evidence for adjustments made by the expert witnesses in the application of a particular valuation approach. Drey v. State Tax Commission, 345 S.W.2d 228, 234-236 (Mo. 1961), Snider v. Casino Aztar/Aztar Missouri Gaming Corp., 156 S.W.3d 341, 348 (Mo. 2005).

The testimony of an expert is to be considered like any other testimony, is to be tried by the same test, and receives just so much weight and credit as the trier of fact may deem it entitled to when viewed in connection with all other circumstances. The hearing officer, as the trier of fact, has the authority to weigh the evidence and 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 may accept it in part or reject it in part. Beardsley v. Beardsley, 819 S.W.2d 400, 403 (Mo. App. 1991); Curnow v. Sloan, 625 S.W.2d 605, 607 (Mo. 1981); Scanlon v. Kansas City, 28 S.W.2d 84, 95 (Mo. 930).

Complainant points to its appraiser’s “education, training, experience and judgment” to justify its opinion of value. No amount of education, training, experience or judgment is a substitute for good appraisal practices or market data. The multitude of methodology mistakes pointed out by the Hearing Officer in her decision nullifies any weight that might arguably be given to this appraiser’s experience, education, training or judgment.

Substantial and Persuasive Evidence

Substantial evidence is that evidence which, if true, has probative force upon the issues, i.e., evidence favoring facts which are such that reasonable men may differ as to whether it established them, and from which the Commission can reasonably decide an appeal on the factual issues. 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 Hearing Officer provided an exhaustive discussion of the flaws in Complainant’s appraisal report. Such a flawed report cannot rise to the level of substantial evidence, much less persuasive evidence. This quality of evidence is not adequate to support a conclusion that the Board’s decision was unlawful, unfair, arbitrary or capricious.

ORDER

The Decision of the Hearing Officer is SET ASIDE. The value, as approved by the Board of Equalization, i.e., $69,779,000 (assessed value $22,329,280) is AFFIRMED.

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.

Judicial review of this Order may be had in the manner provided in Sections 138.432 and 536.100 to 536.140, RSMo within thirty days of the date of the mailing of this Order.

SO ORDERED March 30, 2006.

STATE TAX COMMISSION OF MISSOURI

Bruce E. Davis, Chairman

Sam D. Leake, Commissioner

Jennifer Tidwell, Commissioner

DECISION AND ORDER

HOLDING

The true value in money of the subject property on January 1, 2003 and January 1, 2004 was $83,742,550 (assessed value $26,797,620).

ISSUE

The issue in this case is the true value in money of a 4,450,000 square foot manufacturing plant located in Clay County, Missouri.

SUMMARY

On March 2 and 3, 2005, an evidentiary hearing was held before the Tax Commission hearing officer, Luann Johnson, at the Clay County Administration Building in Liberty, Missouri. Complainant appeared by counsel, Wayne Tenenbaum. Respondent appeared by counsel, Patricia Hughes.

Complainant’s Evidence

Complainant offered into evidence the following exhibits:

Exhibit A, Appraisal Report of Mr. Bealmear.

Exhibit B, Written Direct Testimony of Mr. Bealmear.

Exhibit C, Curriculum Vitae of Mr. Pickering.

Respondent’s Evidence

Respondent offered into evidence the following exhibits

Exhibit 1, Appraisal Report of Mr. Sutterfield.

Exhibit 2, Written Direct Testimony of Mr. Sutterfield.

Exhibit 3, December 23, 2003 cover letter for personal property tax payment.

Exhibit 4, Qualifications of Mr. Shaner.

FINDINGS OF FACT

1. Jurisdiction over this appeal is proper. Complainant timely appealed to the State Tax Commission from the decision of the Clay County Board of Equalization. See Conclusions of Law for discussion.

2. The subject property consists of six parcels of real property, commonly known as the Ford Motor Assembly Plant, 8121 N.E. US Highway 69, Claycomo, Missouri, and further identified as parcels number 14-802-00-02-003-00 (STC Appeal No. 03-32000); 14-802-00-02-003-01 (STC Appeal No 03-32001); 14-802-00-02-003-02 (STC Appeal No. 03-32002); 14-802-00-02-003-03 (STC Appeal No. 03-32003); 14-802-00-02-006-00 (STC Appeal No. 03-32004); and 14-901-00-01-003-00 (STC Appeal No. 03-32005). Complaints for Review of Assessment.

3. The subject property is classified as “commercial” real property and is assessed at 32% of its fair market value, or true value in money.

4. The Assessor valued the parcels as follows:

Appeal
Number

Parcel Number

Market
Value

Assessed
Value

03-32000

14-802-00-02-003-00

$43,519,000

$13,926,000

03-32001

14-802-00-02-003-01

780,000

249.600

03-32002

14-802-00-02-003-02

1,430,000

457,600

03-32003

14-802-00-02-003-03

390,000

124,800

03-32004

14-802-00-02-006-00

22,230,000

7,113,600

03-32005

14-901-00-01-003-00

1,430,000

457,600

Complaints for Review of Assessment.

5. The parcels have been consolidated for the purpose of hearing and decision. The combined values for all parcels, as asserted by the parties and found by the State Tax Commission, are as follows:

Party

Market Value

Assessed Value

Assessor

$69,779,000

$22,329,280

Respondent

$85,000,000

$27,200,000

Complainant

$23,375,000

$ 7,480,000

State Tax Commission

$83,742,550

$26,797,620

6. The highest and best use for the subject property, as improved, is industrial/manufacturing. Complainant’s Ex. A, pg. 23, 29, Respondent’s Ex. 1, pg. 2. The current use of the property as a light truck/SUV assembly plant is consistent with the proposed highest and best use.

9. The parcel in Appeal No. 03-32000 is improved with buildings containing 3,046,134 square feet. The parcel in Appeal No. 03-32004 is improved with buildings containing 1,405,426 square feet. Respondent’s Ex. 1, pg. 5. However, basements, mezzanine, second floor areas and overhead additions represent functional obsolescence (superadequacy) and these areas are not included in determining value for the subject parcels. Respondent’s Ex. 1, Appendix VI.

10. The income approach is not a reliable method to value the subject parcels. Complainant’s Ex. B, pg. 10; Respondent’s Ex. 2, pg. 6.

11. The sales comparison approach is not a reliable method to value the subject parcels. See Discussion.

12. The cost approach is a reliable method to value the subject parcels. Complainant’s Ex. B, pg. 10, Respondent’s Ex. 2, pg. 6.

13. The correct value for the land, under the cost approach, is $22,000 per acre or $7,475,600. Respondent’s Ex. 1, pg. V-24 VI-5.

14. The improvements in Appeal No. 03-32000, and their values under the cost approach, are as follows:

Improvement Description	Yr. Built	Sq. Ft.	Accrued Depr.	Value (RCNLD)
Main Plant (excluding basement and mezzanine)	1951	1,804,300	55%	$24,621,220
Main Plant Addition	1999	63,938	4%	$1,805,061
Main Plant Addition	2002	149,806	1%	3,665,255
Executive Garage	1951	16,362	55%	238,030
Administrative Office Building	1951	57,503	59%	1,972,937
Security Building - Office/Garage	2001	2820/540	1%/2%	254,803
Guard Shack	1951			0
Car Wash Building	1995	22,604	8%	680,597
Shed	2002	1,620	3%	15,904
Shed	1980	1,620	80%	3,279
Water Test & Burke Porter Building	1961	15,209	72%	177,035
Emission Test Building	1968	16,623	72%	155,074
Launch Facility	1999-00	27,840	5%	796,258
Shed	1980	1,830	80%	3,704
SUV E-Coat Building	1984	91,217	36%	1,821,411
Roy O. Wyse Training Center /E-Lab	1977	12,160/ 16,177	35%/27%	2,368,245
Gate Guard Shack				0
Trash Disposal Building	1969	12,444	72%	113,155
Hot Strip Building	1980	3,131	37%	78,097
Parts Storage Building	2001	59,011	2%	2,088,335
Industrial Waste Building	1980	11,348