NESTLE USA, INCORPORATED,	)
	)
Complainant,	)
	)
v.	)		Appeal Nos. 03-10124 and 03-10125
	)
	)
PHILIP A. MUEHLHEAUSLER, ASSESSOR,	)
ST. LOUIS COUNTY, MISSOURI,	)
	)
Respondent.	)

The assessments determined by the St. Louis County Board of Equalization are hereby set aside. The Commission finds the market value and corresponding assessed value for the subject personal property for the 2003 tax year to be:

 ISSUE

The issue in each appeal is: What was the true value in money as of January 1, 2003, of Complainant’s tangible personal property, more specifically, what is the most probable 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 assessments of its machinery, equipment, and other tangible personal property located at 8021 and 8155 New Hampshire Avenue, St. Louis, Missouri. The assessment histories and values proposed by the parties at hearing are as follows:

The evidentiary hearing in these appeals was held on Tuesday, September 14, 2004, before State Tax Commission Hearing Officer, Aimee L. Smashey, at the County Government Building, Clayton, Missouri. Complainant was represented by William J. Falk, Attorney. Respondent was represented by Paula Lemerman, Associate County Counselor.

Complainant submitted the following exhibits in support of its positions:

Respondent submitted the following exhibits in support of its positions:

Respondent’s Exhibit 3 was not admitted as an exhibit on the grounds that it was not been exchanged as required by the scheduling order. See, 12 C.S.R. 30 – 3.060.

1. In calculating the original 2003 assessments, the Assessor determined an assessed value of $148,490 for the business personal property and $1,922,620 for the manufacturing equipment at the 8021 New Hampshire Avenue location. The Assessor determined an assessed value of $174,340 for the business personal property and $2,478,430 for the manufacturing equipment at the 8155 New Hampshire Avenue location.

2. Complainant appealed the assessments to the St. Louis County Board of Equalization. The Board determined an assessed value of $153,390 for the business personal property and $1,380,550 for the manufacturing equipment at the 8021 New Hampshire Avenue location. The Board determined an assessed value of $318,400 for the business personal property and $1,554,530 for the manufacturing equipment at the 8155 New Hampshire Avenue location.

3. Jurisdiction over this appeal is proper. On August 15, 2003, the St. Louis County Board of Equalization issued decisions reducing the total assessment at each facility. On August 29, 2003, Complainant filed its Complaints for Review of Assessment with the State Tax Commission, challenging the assessments on the grounds of overvaluation.

4. The property under review in appeal number 03-10124 consists of the tangible personal property owned by Complainant which is located at Complainant’s manufacturing facility at 8021 New Hampshire Avenue, St. Louis, Missouri, 63123. This property is identified by the assessor’s office as account no. M0087349A. The manufacturing functions or processes performed at this location are dry tableting, sucrose panning, straw forming and filling, multi-pak operations, roll wrap packaging, twist wrap packaging, vertical form, fill, and seal bagging. Complainant’s Exhibit A-24, at 7.

5. The property under review in appeal number 03-10125 consists of the tangible personal property owned by Complainant which is located at Complainant’s manufacturing facility at 8155 New Hampshire Avenue, St. Louis, Missouri, 63123. This property is identified by the assessor’s office as account no. M0029160A. The manufacturing functions or processes performed at this location are chewy tableting, dextrose panning, taffy/kibble cooking and processing, roll wrap packaging, vertical form, fill, and seal bagging. Complainant’s Exhibit A-25, at 7.

6. Both facilities are engaged in manufacturing non-chocolate candy. Complainant’s Exhibits B, at 6; A-24, at 3, & 7; and A-25, at 3 & 7.

7. Complainant’s appraiser valued the items of property in each appeal based on the concept of fair market value in exchange. Complainant’s Exhibit B, at 11. 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).

8. 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 Ethics of the American Society of Appraisers. Complainant’s Exhibits A-24, at 1; A-25, at 1.

9. 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.

10. The valuation of the subject personal property necessarily turns on the use(s) that can be made of the property and the demand that exists for such use(s). The subject property consists of used food and confectionary processing and packaging equipment.

In the U.S. non-chocolate candy market, retail sales have grown at 2.2% annually from 1998 to 2002, but the volume of wholesale sales has decreased from 3.1 billion pounds to 2.7 billion pounds between 1997 and 2001. The United States has federally supported sugar prices, which are twice as high as the world market price for sugar. This has led to 4 of the top 5 market share non-chocolate candy manufacturers to shift production abroad in order to cut sugar costs. The market may show stability or moderate growth due to the growth of novelty products and growth of the Hispanic population, who have been strong consumers of non-chocolate candy. Complainant’s Exhibit A-24 and A-25, at 3 – 5.

The market for used food processing and packaging equipment has been depressed due to general economic uncertainty causing a decrease in demand. "Core equipment" such as kettles, mixers, and generic cooking equipment, can be used for a number of products and has value in the secondary market. Id., at 6. Other equipment such as conveyors, silos, hoppers, large cooling tunnels, and specialized filling or packaging equipment, does not typically sell well in the secondary market. Buyers tend to opt for new equipment of this type since such assets can require significant expense for modification, transportation, and installation. Id.

11. 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.

12. 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 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.

13. Complainant’s appraiser, and a colleague under his supervision, performed an inspection of all the tangible personal property present at the subject locations on the inspection dates of April 21 through April 25, 2003. Complainant’s Exhibits A-24 and A-25, at 2. Between the valuation date and inspection date, Complainant had acquired and disposed of some assets. Complainant’s appraiser spoke with plant personnel, determined what had been acquired and what had been disposed, eliminated the items acquired after the tax date and included items which were held on the tax date and disposed thereafter. Complainant’s Exhibit B, at 7. In valuing the property disposed of prior to inspection, Complainant’s appraiser relied on the item type, make, and model, age, condition as reported by plant personnel, method of disposition, recent sales of the same or comparable equipment and other relevant sources of data. Id., at 8.

14. Complainant’s appraisals primarily relied upon sales and sales offerings of personal property that were the same or comparable to the subject property. The data was obtained from dealers, used equipment brokers, auctions, trade journals, catalogs, manufacturers, quarterly and annual publications, and web sites. Complainant’s appraiser spoke with dealers and others familiar with the sale or offering, compared the results from the different sources, and made adjustments when judged necessary for timing, special circumstances, conditions of sale, or market conditions. Complainant’s Exhibit B, at 15 – 16, 25. Where such data was insufficient, the Complainant’s appraiser relied upon 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. Id., at 16, 26 – 27. Complainant’s evidence produced the best indication of the value of the subject property in the open market.

15. The cumulative market value of Complainant’s personal property located at 8021 New Hampshire Avenue, in St. Louis County was $3,309,100 (assessed value of $1,102,920) as of January 1, 2003.

The cumulative market value of Complainant’s personal property located at 8155 New Hampshire Avenue in St. Louis County was $3,239,200 (assessed value of $1,079,630) as of January 1, 2003.

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.

Complainant moved that the Commission take official notice of its decisions in the 2000 appeals with respect to these locations and, in view of Section 137.345.5, RSMo, note the methodology adopted by the Commission in these decisions. Complainant’s request for official notice of the Commission’s 2000 decisions addressing the tangible personal property assessments at these locations was granted.

In first class counties where a taxpayer has appealed to the State Tax Commission and been successful, "… then in the next following and all subsequent years the basis upon which the assessor must base future assessments of the subject property shall be the basis established by the successful appeal and any increases must be established from that basis." Section 137.345.5, RSMo. The term "basis" is defined as: "1 the base, foundation, or chief supporting factor of anything; 2 the principal constituent of anything; 3 the fundamental principal or theory, as of a system of knowledge." Webster’s New World Dictionary 115 (3rd college ed., 1988). In such cases, evidence establishing the assessor’s failure to use the fundamental methodology relied upon by the Commission in recent decisions affecting the subject property in establishing such property’s new assessed value, provides substantial proof refuting the new assessment and any Board decision which substantially relies on the deficient assessment.

The procedural history in the 2003 appeals indicates that the St. Louis County Board of Equalization rejected the original assessments made by the Assessor. The Board’s action eliminates the need to evaluate the assessor’s original valuations to determine compliance with Section 137.345.5, 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).

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.

"Market value" is defined as "...[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;

b. 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.

"Value in exchange" or "exchange 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. "Value in use" or "use value" is defined as "the value a specific property has for a specific use" (Id., at 383) and "the 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, 2003. 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 a colleague inventoried and inspected the machinery and equipment at the subject sites. 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 and made the appropriate deductions or additions for such equipment. Complainant’s appraisals were performed based upon a fair market value standard. Appraiser Krieser researched the current U.S. non-chocolate candy market and the used food processing and packaging equipment market. 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. In valuing the machinery and equipment, Complainant’s appraiser utilized methodologies, and data sources that are generally accepted in the appraisal community as reliable. Where he had sufficient sales, he utilized the sales comparison approach to provide an indication of value. In all other cases, he used the cost approach to provide an indication of value. In his sales comparison approach, Complainant’s appraiser took steps to ensure the reliability of his data by speaking with dealers and others familiar with the sale or offering under consideration along with utilizing sources that perform their own screening and confirmation. On the items where a cost approach was utilized, Complainant’s appraiser segregated and subtracted installation costs, facility-specific or process-specific engineering costs, sales tax, and freight costs from his cost data, where such costs were included, since he had no market data to indicate that such costs could be commanded in a market exchange for the used equipment on the tax date.

Respondent offered the appraisal reports of Ms. Martina Ragain, Revenue Field Auditor with the St. Louis County Assessor’s Office. Ms. Ragain and a colleague made a site visit at both locations on March 27, 2003. In performing her appraisals, she accepted Complainant’s indicated value on all listed assets acquired prior to 2002. The assets acquired in 2002, and supplies were appraised using the cost approach. Additionally, on account no. MOO87349A, the 8021 New Hampshire Avenue location, she also valued the Webco and Pace air handlers using a cost approach. Ms. Ragain relied on the original costs for the 2002 additions as reported by Complainant and utilized the useful life, depreciation rates, and salvage values as indicated by Marshall and Swift for furniture, fixtures, machinery and equipment. The depreciation on the computers and peripheral equipment was determined by Schedule 2 of the St. Louis County Business Personal Property& Manufacturer’s Equipment Declaration.

Upon review of the testimony and evidence submitted, the opinion evidence offered by Complainant’s appraiser persuades this Hearing Officer. Complainant’s appraisal evidence evaluates the marketplace, market supply and demand elements, sales of like or similar equipment and calculates from 80 to 90 percent of the equipment values based upon the most comparable market data. Complainant’s appraiser’s testimony demonstrates an understanding of the market place for the subject equipment that informs his appraisal applications and adds weight to their persuasive impact. 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 their proposed market values. Complainant’s evidence was sufficient to rebut the presumption in favor of the assessments determined by the St. Louis County Board of Equalization.

Additionally, the facts presented concerning the Webco and Pace air handlers at the 8021 New Hampshire Avenue location were insufficient to establish that such equipment was properly taxable as business personal property.

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.

For appeal 03-10124, the assessed value for the subject personal property for tax year 2003 is set at $1,102,920.

For appeal 03-10125, the assessed value for the subject personal property for tax year 2003 is set at $1,079,630.

A party may file with the Commission an application for review of a hearing officer decision within thirty (30) days of the mailing of such decision. The application shall contain specific detailed 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.

If an application for review of a hearing officer 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 these appeals. If any 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 January 21, 2005.

STATE TAX COMMISSION OF MISSOURI

Aimee L. Smashey

Hearing Officer