MELADI LLC,	)
	)
Complainant,	)
	)
v.	)		Appeal Number 04-10114
	)
	)
PHILIP MUEHLHEAUSLER, ASSESSOR,	)
ST. LOUIS COUNTY, MISSOURI,	)
	)
Respondent.	)

Decision of the St. Louis County Board of Equalization sustaining the assessment made by the Assessor, SET ASIDE, Hearing Officer finds true value in money for the subject property for tax year 2004 to be $391,400, assessed value of $125,250.

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

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

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

The Commission takes this appeal to determine the true value in money for the subject property on January 1, 2004.

Complainant appeals, on the ground of overvaluation and discrimination, the decision of the St. Louis County Board of Equalization, which sustained the valuation of the subject property. The Assessor determined an appraised value of $648,500 (assessed value of $207,520, as commercial property). Complainant proposed a value of $316,774 (assessed value of $101,368). A hearing was conducted on Wednesday, June 1, 2005, at the St. Louis County Government Center, Clayton, Missouri. The transcript of the hearing was received by the Commission on July 14, 2005.

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

Complainant offered into evidence 25 exhibits (Exhibit A through Y) and the written direct testimony of Nat Rishi (Exhibit Z), manager of the subject property and sole member of Meladi, LLC. Complainant’s exhibits were identified in the Exhibit List filed with the Commission on April 11, 2005. Said Exhibit List is incorporated by references as if set out in full in this Decision and Order. Exhibits A through Z were received into evidence.

Respondent did not submit any exhibits or testimony for the record.

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

Complaint for Review of Assessment, with BOE Decision letter.

2. The subject property is located at 3671 N. Lindbergh Blvd., St. Louis, Missouri, and is further identified by locator number 12M120590. The property is a 29-unit low cost limited service non-franchise motel. It was constructed in 1961. The building is of frame construction on a concrete slab foundation. The property is further improved by paved parking areas, a small office, landscaping, signage and lighting. During the year 2003, an existing clubhouse was converted into five units. Prior to 2003 the motel was a 24-unit motel. The approximate square footage of the motel is 7,700 square feet. The property is otherwise known as the Best Way Inn. Exhibit A, Q & A – 1 & 3.

3. The subject property is properly classified as commercial property (sub-class 3 property) and is to be assessed at thirty-two percent (32%) of its fair market value. Section 137.115.1 & 5(3).

4. There was evidence of new construction and improvement from January 1, 2003, to January 1, 2004, by the remodeling of an existing structure to create five additional units. Exhibit Z, Q & A – 3.

5. Complainant’s evidence was substantial and persuasive to rebut the presumption of correct assessment by the Board and establish the true value in money as of January 1, 2004, to be $391,400, assessed value of $125,250.

6. The income approach is an appropriate methodology for the valuation of the subject property. Mr. Rishi demonstrated sufficient experience in the acquisition and management of hotels and motels to render an opinion of value based on the income stream for the subject property as testified to and demonstrated in Exhibit Z, Q & A – 6, and his responses to cross-examination on the valuation of the subject property.

7. The basis for the valuation of the subject property for tax year 2004 is to utilize the income and expenses for the subject for 2004, as it reflects the operation of the 29-unit motel as it existed on January 1, 2004. Exhibit X.

8. The purchase of the subject property under Agreement dated November 30, 2000 (closing date January 8, 2001), for the amount of $615,000, does not establish fair market value as of January 1, 2004. Exhibit V.

9. The existence of a Loan and Note on the subject property and two other properties, in the amount of $451,318.88, dated April 2, 2002, does not establish fair market value as of January 1, 2004. Exhibits R, S, T & U.

The Commission has jurisdiction to hear this appeal and correct any assessment that 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 that is unlawful, unfair, improper, arbitrary, or capricious. Section 138.431.4, RSMo.

There is a presumption of validity, good faith and correctness of assessment by the County Board of Equalization. Hermel, Inc. v. STC, 564 S.W.2d 888, 895 (Mo. banc 1978); Chicago, Burlington & Quincy Railroad Co. v. STC, 436 S.W.2d 650, 656 (Mo. 1968); May Department Stores Co. v. STC, 308 S.W.2d 748, 759 (Mo. 1958).

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

There is no presumption that the assessor’s valuation is correct. Section 138.431.3, RSMo. Notwithstanding the statutory provision of Section 138.431.1, RSMo enacted by the legislature in 1992 (SB 630), the Supreme Court of Missouri has held, "A tax assessor’s valuation is presumed correct." Donna Snider v. Casino Aztar/Aztar Missouri Gaming Corp., SC86181, 3/01/2005. Citing to Hermel, supra; and Cupples Hesse Corp. v. State Tax Commission, 329 S.W.2d 696, 702 (Mo. 1959).

The presumption of correct assessment is rebutted when the taxpayer presents substantial and persuasive evidence to establish that the assessor’s or Board’s valuation is erroneous and what the fair market value should have been placed on the property. Snider, Hermel & Cupples Hesse, supra.

Section 137.115, RSMo, 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, supra.

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

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

1. Buyer and seller are typically motivated.

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

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

4. Payment is made in cash or its equivalent.

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

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

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

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 a 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 or owners who testify on the issue of reasonable value, but may believe all or none of the witness’ 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).

Proper methods of valuation and assessment of property are delegated to the Commission. It is within the purview of the Hearing Officer to determine the method of valuation to be adopted in a given case. See, Nance v. STC, 18 S.W.3d 611, at 615 (Mo. App. W.D., 2000); Hermel, supra; Xerox Corp. v. STC, 529 S.W.2d 413 (Mo. banc 1975).

If specialized knowledge will assist the trier of fact to understand the evidence or to determine a fact in issue, a witness qualified as an expert on that subject, by knowledge, skill, experience, training, or education, may testify thereto.

The facts or data upon which an expert bases an opinion or inference may be those perceived by or made known to the expert at or before the hearing and must be of a type reasonably relied upon by experts in the field in forming opinions or inferences upon the subject and must be otherwise reliable, the facts or data need not be admissible in evidence. Section 490.065, RSMo; Courtroom Handbook on Missouri Evidence, Wm. A. Schroeder, Sections 702-505, pp. 325-350; Wulfing v. Kansas City Southern Industries, Inc., 842 S.W.2d 133 (Mo. App. E.D. 1992).

In order to prevail, Complainant must present an opinion of market value and substantial and persuasive evidence that the proposed value is indicative of the market value of the subject property on January 1, 2003. Hermel, Inc. v. State Tax Commission, 564 S.W.2d 888, at 897. Substantial evidence can be defined as such relevant evidence as a reasonable mind might accept as adequate to support a conclusion. See, Cupples-Hesse Corporation v. State Tax Commission, 329 S.W.2d 696, 702 (Mo. 1959). Persuasive evidence is that evidence which has sufficient weight and probative value to convince the trier of fact. The persuasiveness of evidence does not depend on the quantity or amount thereof but on its effect in inducing belief. Brooks v. General Motors Assembly Division, 527 S.W.2d 50, 53 (Mo. App. 1975). See also, Westwood Partnership v. Gogarty, 103 S.W.3d 152 (Mo. App. E.D. 2003); Daly v. P. D. George Co., 77 S.W.3d 645 (Mo. App. E.D. 2002); Reeves v. Snider, 115 S.W.3d 375 (Mo. App. S.D. 2003).

The owner of property is generally held competent to testify to its reasonable market value. Boten v. Brecklein, 452 S.W.2d 86, 95 (Sup. 1970). The owner’s opinion is without probative value however, where it is shown to have been based upon improper elements or an improper foundation. Shelby County R-4 School District v. Hermann, 392 S.W.2d 609, 613 (Sup. 1965). The owner may not support an opinion of value by reference to comparable sales unless the owner qualifies as an expert. State ex rel. Missouri Hwy. and Tr. Comm’n v. McDonald’s Corp., 872 S.W.2d 108, 113 (Mo. App. E.D. 1994); State ex rel. Missouri Hwy. and Tr. Comm’n v. Pracht, 801 S.W.2d 90, 94 (Mo. App. E.D. 1990).

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).

Evidence of the actual sales price of property is admissible to establish value at the time of an assessment, provided that such evidence involves a voluntary purchase not too remote in time. The actual sale price is a method that may be considered for estimating true value. The actual sales price, between a willing seller who is not obligated to sell and a willing buyer who is not compelled to buy, establishes an outer limit on the value of real property. St. Joe Minerals Corp. v. STC, 854 S.W.2d 526 (App. E.D. 1993).

The opinion of value offered by Mr. Rishi was based on income and expense data for 2003. However, during part of 2003, the subject property was operating as a 24-unit motel. By January 1, 2004, the property was a 29-unit facility. Mr. Rishi removed from the list of expenses the amounts for depreciation, property taxes, amortization and donations. This was proper, as these items are not allowable expenses under an income approach. Amounts to account for a management fee and salary expenses that would be appropriate for a facility like the subject were then added. This was also appropriated. A management fee and salary expenses typical for the operation of a facility like the subject should be included in the list of expense items.

Based upon his more than 20 years experience in the development, management and acquisition of hotels and motels, Mr. Rishi utilized a capitalization rate of .105 and added to this the effective tax rate of .031, for an overall rate of .136. Mr. Rishi’s experience with motels like the subject provides sufficient background for him to offer his opinion as to the appropriate capitalization rate. There being no evidence to the contrary on this point in this record, the capitalization rate of .136 is appropriate for the valuation of the subject.

Mr. Rishi made a deduction for personal property (furniture, fixture and equipment – FF & E) from the indicated value of the subject property. Such a deduction must be made because the value being sought is for the real property only and not for the personal property, which also contributes to the income stream of the Complainant’s motel business. Mr. Rishi tendered his opinion that a deduction of 10% from the indicated overall value would be appropriate. There was no countervailing evidence offered on this point. Accordingly, a 10% deduction is proper in this instance to account for the contributory value of the FF & E.

Therefore, Mr. Rishi’s methodology was appropriate for arriving at an opinion of value under the income approach. Accordingly, the owner’s opinion of value was based upon proper elements and foundation as to the application of the income approach. However, it relied upon 2003 data, when 2004 data would have been more appropriate. It is recognized that the hypothetical buyer on January 1, 2004 does not have access to the income and expense data for that year. Such a prospective purchaser would only have the 2003 data. However, as a knowledgeable investor, it would be understood that the income and expenses were reflective in part of the operation of a motel that for part of the year had five fewer units available for rent.

It is necessary to rely upon hindsight in making a determination of value for the subject property as it existed on January 1, 2004. The hindsight element being the income and expense data for the 2004 year which is reflective of the operation of the 29-unit facility, as opposed to the 24-unit facility which was the basis for the conclusion of value of $316,774 tendered by Mr. Rishi.

The gross income for 2004 was $175,440. Allowable expenses amount to a total of $70,677. This includes an amount for insurance of $6,500 as reported for 2003. The expense data for 2004 indicated a negative amount of $10,202.10 for insurance. Since no explanation was provided relative to this factor, it is proper to assume that Complainant’s business does not get paid by its insurance carrier each year, but rather Complainant pays insurance premiums for appropriate coverage. A management fee of 6% of gross income, or $10,526 is proper. Likewise, an amount to account for salary expense that is typical in the industry of 20%, or $35,088 is appropriate. Exhibits Z, Q & A – 6; Tr. 25, Lines 6 – 21. Total allowable expenses are $116,291.

The Net Operating Income is $59,149 ($175,440 - $116,291 = $59,149). This is capitalized by the rate of .136 to provide an indicated value of $434,919 ($59,149/136 = $434,919). From this indicated value is deducted $43,492 to account for the contributory value of the FF & E, which results in a value for the subject real property of $391,400 ($434,919 x .10 = $43,492; $434,919 - $43,492 = $391,427, rounded to $391,400).

Mr. Rishi had offered an opinion of value $316,774 which was based on the operation of a 24-unit facility. This was an indicated per unit value of $13,199 ($316,774/24 = $13,199). The indicated per unit value under the income analysis just performed for the 29-unit motel is $13,497 (391,400/29 = $13,497). The gross per unit income for the 24-unit facility for 2003 was $6,475 ($155,405/24 = $6,475). The gross per unit income for the 29-unit motel in 2004 was $6,050 ($175,440/29 = $6,050).

The fair market value of the subject property as of January 1, 2004, based upon its actual income stream, is $391,400.

Ordinarily when there has been an actual sale of the property under appeal, at a time relevant to the valuation date, that sale price will be given a great deal of weight. It often is determinative of the issue of fair market value. Therefore, it is reasonable in most instances for an assessor to place reliance on the reported sale price of a property, as was essentially done in this case by Respondent. However, the evidence clearly, and uncontrovertibly establishes that no probative weight can be given to the 2001 sale of the subject.

There are several facts in evidence rendering the 2001 sale as meaningless in this appeal. Mr. Rishi has sufficient experience in the purchase of motels like the subject to be very knowledgeable as to the price an informed buyer and seller would agree to as the sales price for the subject property. Tr. 10, Lines 2 – 11. The 2001 transaction did not involve the subject actually being listed for sale. Tr. 10, lines 24 – 25. It was not exposed to the market to see what prospective investors would pay for the motel. Tr. 11, Lines 1 – 4.

Although both the seller and the buyer, in the 2001 transaction were willing, the motivation of Mr. Rishi was not the typical motivation of the ordinary well-informed investor purchaser. Mr. Rishi wanted to stay in St. Louis and he knew he was paying double the value of the property. The Seller wanted to retire and he would only sell the property at a price that was more than what it would bring on the open market. It was a take it or leave it proposition on the part of the seller and he knew the property was not worth what he was willing to take for it. Tr. 11, Lines 8 – 22. Mr. Rishi knows that he cannot sell the subject property for $615,000, because it does not represent its fair market value, either in 2001 or in 2004. Tr. 15, Lines 11 – 16.

Based upon the income and expenses on the property for both 2003 and 2004, it is clear that the income stream for those two years does not support a value of $615,000 (2001 purchase price). There is no evidence to suggest that in the years prior to the 2001 sale the property had a stream of income which would support a value of $615,000. The gross income for the property for 2003 was 49% of the indicated value under the income approach. The gross income for the property for 2004 was 45% of the indicated value under the income approach. In order to support a value of $615,000 for the 2001 sale, the gross income stream would have to have been from $276,750 to $301,350, or from 157% to 194% of the gross income stream established for 2003 and 2004.

The fact that in 2001 both the seller and Mr. Rishi agreed to a price of $615,00 does not establish that the ordinary, well-informed investor purchaser would have paid such a sum for the subject property at that time or in January, 2004. The 2001 transaction did not represent fair market value for the property. It can be afforded no probative value in this appeal. In like manner the loan on the subject property in the amount of $450,000 has no probative value, because the loan is not just on the subject property, but two other properties provide collateral for the loan.

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

The assessed value for the subject property for tax year 2004 is set at $125,250.

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

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

SO ORDERED August 4, 2005.

STATE TAX COMMISSION OF MISSOURI

W. B. Tichenor

Hearing Officer