QUEST DIAGNOSTICS CLINICAL LABS,	)
	)
Complainant,	)
	)
v.	)		Appeal Number 03-10093
	)
	)
PHILIP A. MUEHLHEAUSLER, ASSESSOR,	)
ST. LOUIS COUNTY, MISSOURI,	)
	)
Respondent.	)

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

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. The subject property is located at 2040 Concourse Drive, St. Louis, Missouri and 11636 Administrative Drive, St. Louis, Missouri. The assessment histories and proposed values are:

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.

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

Exhibit A-1, Appraisal Report of Allen D. Bealmear, ASA, CEA – 11636 Administration Drive, personal property.

Exhibit A-2, Appraisal Report of Allen D. Bealmear, ASA, CEA – 2040 Concourse Drive, personal property.

Exhibit B-1, Sales Comparison Demonstration - 11636 Administration Drive.

Exhibit B-2, Sales Comparison Demonstration – 2040 Concourse Drive.

Exhibit C, Written Direct Testimony of Mr. Bealmear.

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

Exhibit 1, Appraisal Report of Larry Davis, Revenue Field Auditor – 2040 Concourse Drive, personal property.

Exhibit 2, Appraisal Report of Larry Davis, Revenue Field Auditor – 11636 Administration Drive, personal property.

Exhibit 3, Written Direct Testimony of Mr. Davis – 2040 Concourse Drive.

Exhibit 4, Written Direct Testimony of Mr. Davis – 11636 Administration Drive.

1. The Assessor calculated a 2003 assessed value of $474,490 for the business personal property at 2040 Concourse Drive, St. Louis, Missouri (Assessor’s Account No. B0063035A), and $1,356,690 for the business personal property at 11636 Administrative Drive, St. Louis, Missouri (Assessor’s Account No. B0027408A).

2. Complainant appealed the assessments to the St. Louis County Board of Equalization. The Board affirmed the assessments.

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

4. Complainant operates medical testing laboratories. Respondent’s Exhibits 1 & 2, p. 6. The personal property under review includes microscopes, tester/analyzers, vacuum infiltration processors, biopsy cassette slide slicers, solvent recyclers, a crusher, computers, environmental chambers, a nephlometer analyzer, walk-in coolers, pipetters, chemistry test pods, centrifuges, spectrometers, incubators, gas chromatographs, hematology analyzers, scanners, and chemistry analyzers. Complainant’s Exhibits A-1 and A-2. A complete detailed listing of the items of personal property under appeal was set out at pages 18 through 94 of Exhibit A-1 and pages 18 through 75 of Exhibit A-2.

5. Complainant’s appraiser valued the items of property based on the concept of fair market value in exchange. Complainant’s Exhibit C, pp. 7 - 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. 20, and A-1 and A-2, 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.

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, at 7, and A-1 and A-2, p. 7. The asset listings of each of Complainant’s appraisals are the products of the lists made at the inventory and inspection of each location. Complainant’s appraiser 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 evaluated the condition of each item of property based upon personal observation, a review of the maintenance records, and discussions with maintenance personnel. Complainant’s Exhibit C, p. 9. Respondent’s appraiser identified the subject property by performing an inventory and inspection, except for supplies. Tr. 75 – 77. No inventory list was included as part of Respondent’s appraisal reports. With the exception of supplies, Respondent’s appraiser is in agreement with Complainant’s listing of equipment and machinery. Respondent’s Exhibits 3 & 4, pp. 4-5.

11. Both appraisers agree that the market approach provides the most accurate indication of the fair market value of the subject property. Complainant’s Exhibit C, p. 12 – 13; Tr. 77.

12. Complainant’s appraisal 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., at 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 equipment located at 2040 Concourse Drive, St. Louis, Missouri was $813,220 (assessed value of $291,070) as of January 1, 2003. The reported cost for supplies was $81,350. The total true value in money for equipment and supplies was $894,350, assessed value of $298,190.

The cumulative market value of Complainant’s equipment located at 11636 Administrative Drive, St. Louis, Missouri was $2,542,740 (assessed value of $847,580) as of January 1, 2003. The reported cost for supplies was $422,590. The total true value in money for equipment and supplies was $2,965,330, assessed value of $985,440.

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.

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, 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 report and testimony of Mr. Allen Bealmear, a machinery and equipment appraiser. Respondent offered the appraisal report and testimony of Mr. Larry Davis, Revenue Field Auditor for the St. Louis County Assessor’s Office. Both appraisers identified the subject property by performing an inventory and inspection. However, only Mr. Bealmear actually presented his inventory list as a part of his appraisal. Both appraisers judge that the market approach is the most accurate indicator of the market value for the subject property.

In the valuation of the Concourse facility property, Respondent’s appraiser adopted the value determined by Mr. Bealmear on 1,870 of the 2,003 items of property detailed and inventoried in the Complainant’s appraisal. It was only on 129 total items (13 category of items) that Mr. Jones offered an opinion of value different than that of Mr. Bealmear. In other words, Mr. Jones adopted the valuation made by Mr. Bealmear on approximately 94.6% of the total items of property appraised. This represented just over 88% of the total value determined in Complainant’s appraisal for the Concourse facility personal property.

For those items Mr. Jones valued, he subtracted the value for the 129 items from the Bealmear appraisal and then added back the total value which he determined for these items. Mr. Jones provides no reference to his inventory list of property. Nor does he reference to the Bealmear inventory to identify the specific 129 items valued at different amounts than Complainant’s appraiser. Therefore, it was not possible to check to determine that Mr. Jones had correctly subtracted the amount for these 129 items.

A check as to one category of property (Herman Miller Cubicle Systems) showed that Mr. Jones valued 82 such systems. The 82 systems were not identified by reference to Entry numbers in Exhibit A-2. However, a review of the only inventory on the record (Bealmear inventory, pp. 18 – 75, Exhibit A-2) shows that there were a total of 133 Herman Miller Cubicle Systems. Entry 290 (8); Entry 332 (2); Entry 348 (5); Entry 409 (40); Entry 417 (6); Entry 447 (1); Entry 453 (15); Entry 464 (7); Entry 526 (46); Entry 567 (3). It is impossible to determine exactly which 82 systems Mr. Jones valued and which 51 of the systems he concurred in the Bealmear opinion of value.

This illustrates one of the major problems with attempting to pick and choose items out of an appraisal on which to value some property. By performing his valuation in the manner in which he did, Respondent’s appraiser was in effect utilizing the Bealmear inventory, not an inventory he developed on his own. Since his methodology was to subtract a value for 129 items lumped together, it was necessary for Mr. Jones to identify which entries on the Bealmear inventory actually represented those 129 individual pieces of property. Failing to do this leaves open the question of whether the deduction of $96,800 from the Bealmear opinion of value was correct or not. In the form in which Exhibit 1 presents the valuation of the 129 items, it is not possible to verify if the deduction correctly covered the values set forth in Exhibit A-2 for the various items of property.

There were only 109 separate items of property at the Administration Drive facility which Respondent’s appraiser valued. Complainant’s appraisal lists a total of 2,177 items of equipment that were inventoried and valued. Exhibit A-1, pp. 18-94. For this appraisal, Mr. Jones concurred in the opinion of value offered by Mr. Bealmear on 2,068 or 95% of the items of property.

A similar error to that discussed above with regard to cubical systems is present in Respondent’s Exhibit 2. There are 25 cubical systems valued, but the inventory (Exhibit A-1) shows 28 such systems. Entry 570 (10); Entry 588 (2); Entry 1060 (5); Entry 1064 (3); Entry 1088 (2); entry 1107 (3); Entry 1112 (3). As with the Concourse Drive valuation, there is no way to determine which of the 3 cubical systems Mr. Jones did not value. Thus, there is no means of verifying the amount deducted for the combined 109 items.

Both appraisers exclusively utilized a sales comparison approach to provide an indication of value for the individual items of machinery and equipment. Respondent’s appraiser indicated the data sources relied upon for the 13 categories (129 items) of equipment for which an opinion of value was offered for the Concourse property, and for the 18 categories (109 items) of equipment for which an opinion of value was offered for the Administration property. For the remaining, 3,938 items of property appearing in the Complainant’s appraisals, Mr. Jones was for all intents and purposes adopting the data sources used by Mr. Bealmear and the adjustments made for each item by Mr. Bealmear.

Respondent’s appraiser developed a methodology that for 93.4% of the Concourse property items and for 95% of the Administration property items adopted and endorsed the approach and opinion of value of Complainant’s appraiser. For the remaining 238 items Mr. Jones found some market data to offer a different opinion of value. This is not demonstrated to be a methodology or approach for valuation of machinery and equipment generally accepted within the appraisal industry.

Complainant’s appraiser has significant experience with machinery and equipment valuation. 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. Complainant’s appraisals indicate generally the data sources relied upon in the appraisals. Exhibits A-1 & A-2, p. 17. The data utilized, the adjustments made and the final conclusions of value for nearly 95% of Complainant’s property.

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 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 issue of valuation and assessment of supplies in this appeal was addressed at length during the evidentiary hearing. Tr. 66, Line 7 – Tr. 73, Line 4; Tr. 103, Line 20 – Tr. 104, Line 7. The record was left open for any supplemental evidence on the issue. No supplemental evidence was forthcoming from either party.

The issue arose due to the fact that for the Concourse Drive facility, Complainant reported an amount of $81,354 for cost of supplies on hand January 1. Exhibit 1. For the Administration Drive facility, the amount reported was $422,586. Exhibit 2. These amounts were in a section of the Business Personal Property Declaration identified as follows:

Expendable goods and supplies on hand January 1, including repair parts, office supplies, fuel inventories, medical office supplies, etc. Do not include inventory for sale or manufacturer’s product inventory.

The types of items involved in this appeal as supplies included rubber gloves, disposable gowns, glass test tubes, and cleaning supplies. Complainant reported the cost for such items as on hand on January 1. Mr. Jones added the amounts reported to his appraisals to arrive at his final opinion of value. Mr. Bealmear considered such items as expendable goods that are consumed during the process of Complainant’s business of medical testing.

There is no inventory of exactly what the items are which make up the amounts reported. Mr. Jones did not inventory these items, even though he believed they were to be valued. He simply used the apparent cost to purchase the items that were on hand on January 1 as the fair market value of the supplies.

Mr. Bealmear did not inventory the supplies because he felt they were consumed by the day to day activities of Complainant. As rubber gloves or disposable gowns are used they are then thrown away. Cleaning agents are used up in the ordinary maintenance of the laboratory facilities.

Article X, Section 6.1, Mo. Const. Exempt from taxation, "all personal property held as industrial inventories, including raw materials, work in progress and finished work on hand by manufacturers and refiners, and all personal property held as goods, wares, merchandise, stock in trade or inventory for resale by distributors, wholesalers, or retail merchants…."

Complainant is not a manufacturer or refiner, nor a distributor, wholesaler or retail merchant. Complainant performs medical testing. It is not disputed that the supplies are consumed in the operation of Complainant’s business. However, the supplies are not industrial inventories, raw materials, work in progress or finished work on hand. Neither are the supply items goods, wares, merchandise, stock in trade or inventory for resale.

Notwithstanding that the Complainant’s supplies are very much like these other categories of items, which are not subject to ad valorem taxation, the plain language of the constitutional provision does not appear to be broad enough to encompass these items and exempt them from taxation. In the absence of legal authority to the contrary, the items are subject to taxation. The only evidence of value on this record are the "cost" figures reported by Complainant. In the absence of evidence that these items would sell in a user-to-user market for some other amount, the reported cost amounts will be used in this instance as true value in money for the purposes of the assessment of Complainant’s 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. The assessed valuation for the subject personal property for the 2003 tax year is hereby set as follows:

Account Number – B0063035A – Concourse Dr. Location - $298,190

Account Number – B0027408A – Administration Dr. Location - $985,440

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