Nestle Purina Summary

State Tax Commission of Missouri

NESTLE PURINA PETCARE COMPANY, )

)

Complainant, )

)

v. ) Appeal Nos. 03-20047 through 03-20098

) and 04-20004

)

ED BUSHMEYER, ASSESSOR, )

ST. LOUIS CITY, MISSOURI, )

)

Respondent. )

ORDER

MODIFYING HEARING OFFICER DECISION

UPON APPLICATION FOR REVIEW

On January 20, 2006, Senior Hearing Officer Luann Johnson entered her Decision and Order (Decision) setting aside the assessment by the St. Louis City Board of Equalization and setting value for the property under appeal.

Respondent timely filed his Application for Review of the Decision. Respondent’s Points on Appeal are not persuasive but, after a careful review of the evidence, we find that the Hearing Officer’s decision should be affirmed in part and modified in part.

COMMISSION FINDINGS

There is a presumption that the value determined by the Board of Equalization is correct. In the instant appeals, the Board of Equalization determined that the correct value for all parcels for tax year 2003 was $47,095,440 (assessed value $15,070,540). Under the two-year assessment cycle, value determined for the odd-numbered year shall be applied to the even-numbered year unless there is evidence of new construction and property improvements. During tax year 2004, the Energizer Building was remodeled and renovated. The Board of Equalization determined that the correct value for this building for tax year 2004 was $5,273,438 (assessed value $2,687,500).

In order to overcome the presumption in favor of the Board of Equalization, the taxpayer must present substantial and persuasive evidence tending to demonstrate that the Board’s decision was unlawful, unfair, improper, arbitrary or capricious. Substantial evidence is that evidence which, if true, has probative force upon the issues. Persuasive evidence is that evidence which has sufficient weight and probative value to convince the trier of fact.

Although the Hearing Officer weighed the evidence as between the two appraisers, there is no indication that the Hearing Officer properly applied the first portion of the test and weighed Complainant’s evidence against the presumption in favor of the Board of Equalization. We find that Complainant’s evidence, in vast part, was not sufficient to overcome the presumption in favor of the Board. Flaws include: using sales that are admittedly not highly comparable. Ex. A, pg 85; failing to use a paired sales analysis to make locational adjustments for comparable sales; failure to present market data for vacancy and collection loss or operating expenses in the income approach. Ex. A, p. 112-114; and failure to support capitalization rates. Ex. A, pg. 114-115. All of these flaws are potentially fatal when Complainant bears the burden of proof.

The improvements in the area South of Highway 40, North of Lafayette, and East of Jefferson are predominantly low-rise, industrial, retail and residential (Tr. 201-202) like most of the buildings that are the subject of this appeal. The Board of Equalization could easily have had the experience, expertise and comparable sales to determine appropriate market value for the low

rise office buildings and industrial buildings. Complainant’s flawed evidence does not support a finding that the Board improperly valued these buildings.

However, since approximately 1960, the only building over 10 stories tall which has been built in this area is the Nestle’ Tower Building. (Tr. 200). The fact that there are no sales – and can be no sales - of similar buildings in the subject area which could support the Board of Equalization’s value, supports a finding that Complainant has overcome the presumption in favor of the Board of Equalization as to the Tower Building.

Having overcome the presumption in favor of the Board of Equalization on the issue of Tower value, Complainant’s evidence must now be more substantial and persuasive than Respondent’s evidence in order for Complainant to prevail.

Respondent’s appraiser relied upon sales of four office towers which sold between June of 1998 and February of 2004. Respondent’s appraiser made adjustments to those sales but said adjustments were not supported by market data. None of said towers were located South of Highway 40 like the subject tower. Ex. 1, pp. 190-105. We do not find Respondent’s evidence to be persuasive as to the value of the Nestle’ Tower Building.

We are, however, persuaded that the lack of construction of mid sized office buildings in the subject area in the last 40-odd years indicates a lack of market demand. Further, the evidence indicates that the heating and cooling systems for this building are provided by boilers and chillers located in another building which make selling this building as a stand alone structure very difficult. Finally, the building does not meet current code because it is not protected by sprinkler systems and said systems would be difficult to install because of the building’s all concrete construction. Ex. A, pg. 54-55.

In view of all the foregoing, we find that Complainant can only prevail on the issue of the Tower value. On the remainder of the property, Complainant has failed to overcome the presumption in favor of the Board of Equalization.

COMMISSION SETS VALUES

The Commission sets the following values for each parcel:

Appeal Number	Parcel Number	Building	Original value	Respondent’s value	Complainant’s value	STC value
03-20047	0212-00-00100	CBC/Zappi	$1,593,750	$418,600	$259,270	$1,593,750
20048	0212-00-00200	CBC/Zappi	$695,625	$279,100	$109,530	$695,625
20049	0212-00-00300	CBC/Zappi	$763,125	$602,300	$470,170	$763,125
20050	0420-00-00100	Administration	$264,063	$474,300	$287,690	$264,063
20051	0421-00-00100	R. Nor./Solvent	$5,340,938	$5,266,000	$1,923,950	$5,340,938
20052	0421-00-00110	R. Nor./Solvent	$9,063	$183,000	$11,100	$9,063
20053	0421-00-00120	R. Nor./Solvent	$4,063	$8,800	$3,960	$4,063
20054	0421-00-00130	R. Nor./Solvent	$65,625	$163,800	$73,690	$65,625
20055	0421-00-00150	R. Nor./Solvent	$19,063	$47,900	$21,560	$19,063
20056	0421-00-00200	Research South Administration	$7,948,438	$2,877,700 $4,881,600	$2,331,410	$7,948,438
20057	0422-00-00500	Administration	$39,063	$139,400	$62,710	$39,063
20058	0422-00-00600	Administration	$92,813	$204,700	$124,170	$92,813
20059	0429-00-00400	Tower	$100,313	$233,500	$135,530	$135,530
20060	0429-00-00450	Tower	$3,438	$15,300	$6,866	$6,866
20061	0429-00-00500	Tower	$58,750	$129,800	$78,710	$78,710
20062	0429-00-00600	Tower	$39,063	$86,300	$52,330	$52,330
20063	0430-00-00100	Tower	$302,188	$596,300	$241,670	$241,670
20064	0430-00-00200	Tower	$184,688	$360,400	$220,860	$220,860
20065	0430-00-00300	Tower	$11,585,000	$10,196,800	$3,256,280	$3,256,280
20066	0430-00-00400	Tower	$24,063	$47,500	$28,800	$28,800
20067	0430-00-00500	Tower	$89,688	$175,100	$106,200	$106,200
20068	0430-00-00600	Tower	$128,125	$246,600	$149,530	$149,530
20069	0431-05-00100	Solae	$9,880,625	$5,690,700	$2,556,170	$9,880,625
20070	0431-05-00200	Solae	$498,750	$981,800	$595,480	$498,750
20071	0431-05-00400	Solae	$175,000	$358,900	$217,690	$175,000
20072	0431-06-00100	Solae	$440,313	$868,600	$526,790	$440,313
20073	0431-06-00200	Tower	$101,250	$199,500	$120,990	$120,990
20074	0431-06-00300	Tower	$68,438	$137,500	$82,160	$82,160
20075	0431-06-00400	Tower	$61,250	$121,100	$73,440	$73,440
20076	0431-06-00600	Tower	$53,125	$121,500	$73,710	$73,710
20077	0431-06-00700	Purina Credit	$200,000	STIP	STIP	STIP
20078	0432-00-00400	Tower	$41,250	$81,000	$49,125	$49,125
20079	0432-00-00500	Tower	$40,313	$79,700	$48,305	$48,305
20080	0439-00-00100	Tower	$31,000	$190,800	$115,710	$115,710
20081	0440-00-00100	Research South	$615,000	$1,222,300	$381,630	$615,000
20082	0443-00-01000	Tower	$214,400	$1,391,300	$434,400	$434,400
20083	0461-00-00300	Energizer	$50,313	$108,500	$60,230	$50,313
20084	0461-00-00850	Energizer	$488,750	$971,800	$539,670	$488,750
20085	0461-00-01610	Energizer	$37,125	$125,400	$68,910	$37,125
20086	0462-05-00100	Daycare	$322,188	$368,500	$317,220	$322,188
20087	0462-05-00400	Daycare	$65,625	$21,000	$67,780	$65,625
20088	0462-05-00450	Energizer	$2,609,688	$3,119,900	$1,005,950	$2,609,688
20089	0462-05-00650	Energizer	$27,500	$274,400	$15,240	$27,500
20090	0467-03-00100	Residential	$67,500	$49,200	$30,940	$67,500
20091	0467-03-03000	Residential	$11,250	$300,800	$5,060	$11,250
20092	0486-00-00050	Checkmark	$416,563	STIP	STIP	STIP
20093	0486-00-00150	Checkmark	$3,438	STIP	STIP	STIP
20094	0486-00-00210	Checkmark	$6,875	STIP	STIP	STIP
20095	0486-00-00250	R.Nor./Solvent	$455,000	$930,500	$566,150	$455,000
20096	0486-00-00400	Checkmark	$60,313	STIP	STIP	STIP
20097	0486-00-00450	Checkmark	$55,000	STIP	STIP	STIP
20098	0486-00-00500	Checkmark	$646,563	STIP	STIP	STIP

04-20004	0462-05-0450	Energizer	$5,273,438	$6,600,000	$3,800,000	$5,273,438

CONCLUSIONS OF LAW

Standard Upon Review

ORDER

The Commission upon review of the record and Decision in this appeal, finds that the Hearing Officer Decision was not supported by competent and substantial evidence upon the whole record. Accordingly, the Decision is affirmed in part and modified in part, as set forth above.

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.

If judicial review of this decision is made, any protested taxes presently in an escrow account in accordance with these appeal shall be held pending the final decision of the courts. If no judicial review is made within thirty (30) days, this decision and order is deemed final and the Collector of St. Louis City, 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.

SO ORDERED August 10, 2006.

STATE TAX COMMISSION OF MISSOURI

Bruce E. Davis, Chairman

Jennifer Tidwell, Commissioner

Charles Nordwald, Commissioner

DECISION AND ORDER

HOLDING

The decisions of the Board of Equalization are SET ASIDE. Values proposed by the taxpayer are SUSTAINED. See paragraph 8 below. Values for parcels designated as the Checkmark Building and the Credit Union were stipulated after hearing and are set out in paragraph 8.

ISSUE

The issue in this case is the true value in money of an office/manufacturing complex located just outside the central business district of St. Louis City, Missouri.

SUMMARY

On July 19 and 20, 2005, an evidentiary hearing was held before the Tax Commission hearing officer Luann Johnson at the Courthouse in St. Louis, Missouri. Complainant appeared by counsel, William J. Falk. Respondent appeared by counsel, Carl W. Yates, III.

EXHIBITS

The following Exhibits were introduced into evidence:

Exhibit A – 2003 Appraisal Report of Thomas McReynolds, MAI.

Exhibit B – 2004 Appraisal Report of Thomas McReynolds, MAI.

Exhibit C – Written Direct Testimony of Thomas McReynolds, MAI.

Exhibit 1 - Appraisal Report of Russell Lauer, MAI.

Exhibit 1-A – Addenda to Appraisal Report of Russell Lauer, MAI.

Exhibit 2 - Written Direct Testimony of Russell Lauer, MAI.

Exhibit 3 – Written Direct Testimony of John Gilbert, Real Property Appraisal

Manager for the City of St. Louis.

Exhibit 4 – Map.

FINDINGS OF FACT

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

2. The subject property consists of 52 parcels of real property, commonly known as the Nestle Purina complex in St. Louis City. The property is located at Chouteau Avenue and Tucker Boulevard and contains 41.74 acres with various buildings and improvements briefly described as follows:

a. CBC/Zappi Warehouse – a part 3-story, part 4-story, masonry, industrial building built in 1920 containing 107,738 square feet including 9,647 square feet of basement space. The building is of average quality and below average condition. Ex. A, p. 49. The parties agree that the roof in this structure was leaking. Tr. 210.

b. Checkmark Building – a two story, masonry office building containing 27,751 square feet including a 6,823 square foot basement. The building was built in 1924 and remodeled in 1983 and 1989. It is of average quality construction and average condition. The parties have stipulated to value on this building.

c. Solae “C” Building – a five story masonry Class B office building containing 153,877 feet, including 15,300 square feet of basement space. It was constructed in 1984. The building is of average quality construction and below average condition. Both parties agree that this building suffers from a significant crack in the first floor concrete slab along the north wall, adjacent to the exterior foundation/footing. Ex. A, p. 53; Tr. 181. Cost of repair is estimated to be $750,000 to $1,000,000.

d. Credit Union Building – a one story, masonry office building containing 6,959 square feet constructed in 1969 and renovated in the late 1990s. The building is of average quality construction and average condition. Ex A, p. 53. The parties stipulated to the value of this parcel.

e. Tower Building – a sixteen-story concrete and masonry office building that contains 316,938 square feet including 28,374 square feet of basement and sub-basement and a 1,440 square foot mechanical penthouse. The building was constructed in 1969 and is fairly typical of a high-rise office building of that era. The building is of above average quality construction and in average condition. Ex. A, p. 54. The parties agree that the Tower building has no sprinkler system and shares its heating and air conditioning systems with other buildings in the complex. Tr. 291-292.

f. Research North/Organic Solvents Building – a five story masonry and steel building containing 242,187 square feet, including 57,813 square feet of basement space and tunnels connecting it with the Tower Building. The building was constructed in 1969 and consists of two separate sections, including outdated lab space. The building is of average quality construction and below average condition. Ex. A, p. 55. The parties agree that the building has substantial lab space which would have to be converted to office space. Tr. 213. The building shares its heating and air conditioning systems with other buildings in the complex.

g. Research South – a four story masonry and steel building containing 87,289 square feet including 4,585 square feet of basement space. The building was constructed in two phases in 1944 and 1964 and was renovated in 1973. A partial renovation was completed in 2003. The building is of average quality construction and is in below average condition for its age. Ex. A, p. 56. The building shares its heating and air conditioning systems with other buildings in the complex.

h. Administration Building – five buildings constructed between 1912 and 1961 that have been joined together as a single office building. They are a combination of five and seven story structures with a total building area of 217,342 square feet including 34,566 square feet of basement space. The building is of below average quality and below average condition. Ex. A, p. 57. The parties agree that the floor area in one corner was so weak that former staff had been advised not to place anything heavy in that area lest it fall through the floor. Tr. 211. The building shares its heating and air conditioning systems with other buildings in the complex.

i. E (Energizer) Building – a three story masonry office building constructed in 1910 as a warehouse and converted to office space in 1981. It contains 103,779 square feet. Ex. A, p. 60. Some $2,000,000 in renovations were made to the building after January 1, 2003.

j. Daycare Center – a one story frame daycare center building containing 5,149 square feet constructed in 1980 and remodeled in 1995. The building is of average quality construction and in average condition. Ex. A, p. 62.

k. Tenth Street Pedestrian Mall – a broad pedestrian area that occupies the right-of-way of the former Tenth Street.

l. Ancillary Buildings – there are five small ancillary buildings housing an electrical substation, boiler room, air conditioning chillers, landscaping and maintenance garage/shop.

m. Site improvements – large asphalt paved parking areas and extensive landscaping, including a small lake with a walking path.

3. The single most significant factor impacting value of this office complex is its location just outside the central business district of St. Louis City – which itself is stagnant for office space sales and rentals. Specifically:

a. The Nestle Purina complex, primarily Class B and Class C office space, sits on the southern edge of the Downtown Central Business district at the intersection of four neighborhoods as defined by the city. Ex. 1, p. 32.

b. Office demand peaked toward the end of the 1990’s, dropped near 2000, and has stabilized since then. However, the downtown market’s stabilization has lagged behind other areas in the region.

c. Based upon a survey by the Society of Industrial and Office Realtors (SIOR) the vacancy rate for year-end 2002 for downtown class “A” space was 13.35%. The vacancy rate for class “B” space was 26.47%.

d. Other than one or two government office buildings, no new office construction has taken place in nearly 20 years. The downtown area is being extensively redeveloped into loft apartments, retail and recreational facilities. Ex. 1, pp. 34-36.

e. As of the valuation date, there was a glut of office space, more than 1.2 million square feet, of sublease space available in downtown St. Louis; more than triple the amount of just two years previously. St. Louis is experiencing an increase in vacancy, a decrease in lease rates, and a significant drop in absorption. Lease rates were down 15% on average from 2002. Speculative construction had come to a halt. The majority of the 1.9 million square feet under construction in 2003 was build-to-suit, owner occupied space. Forecasters expect a slow recovery as the glut of sublease space is absorbed with lease rates staying consistent. Ex. A, p. 29; Tr. 190.

f. Major corporations such as Southwestern Bell and Pet, Incorporated have moved their headquarters from the St. Louis downtown area. Tr. 191-192.

g. While neighboring counties are experiencing significant growth, the population in St. Louis City is declining. Tr. 192-193. The decline in population corresponds in general with deteriorating property values and commercial and industrial plant closings. Ex. l, p. 28.

h. Since the 1960s, in the area north of Highway 40, south of Washington Street and east of Jefferson Street, there have been at least 15 buildings constructed which are over ten stories high. However, south of Highway 40, where the subject property is located, the only building over ten stories high is the subject Tower building. Tr. 200. Other than owner occupied buildings, no offices have been built either north or south of Highway 40 since 1995. Tr. 200.

i. The area north of Highway 40, south of Washington and East of Tucker is predominantly high-rise office space, hotels, government buildings, some retail, and loft conversions. The area south of highway 40, where the subject property is located, is predominantly low-rise, industrial, retail, and residential. Tr. 201-202.

4. The subject property is classified as “commercial” real property and is assessed at 32% of its fair market value, or true value in money. Two parcels making up a park are classified as residential and are assessed at 19% of fair market value.

5. The value determined for tax year 2003 shall also be the value for tax year 2004, except for the Energizer Building which was substantially remodeled/repaired after January 1, 2003. For this building, we will value the improvements that existed on January 1, 2004, using the economic conditions that existed on January 1, 2003.

6. The Assessor originally valued the entire complex at $47,095,400 which value was affirmed by the Board of Equalization. Complainant asserts a value for all parcels for tax year 2003 at $19,241,000. Respondent asserts a value for all parcels for tax year 2003 at $46,200,000.

7. For tax year 2004, the Assessor asserted a value of $5,273,438 for the Energizer Building. Said value was approved by the Board of Equalization. On appeal, Complainant asserts a value of $3,800,000. On appeal, Respondent asserts a value of $6,600,000 in support of the original value by the Assessor.

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

Appeal Number	Parcel Number	Building	Original value	Respondent’s value	Complainant’s value	STC value
03-20047	0212-00-00100	CBC/Zappi	$1,593,750	$418,600	$259,270	$259,270
20048	0212-00-00200	CBC/Zappi	$695,625	$279,100	$109,530	$109,530
20049	0212-00-00300	CBC/Zappi	$763,125	$602,300	$470,170	$470,170
20050	0420-00-00100	Administration	$264,063	$474,300	$287,690	$287,690
20051	0421-00-00100	R. Nor./Solvent	$5,340,938	$5,266,000	$1,923,950	$1,923,950
20052	0421-00-00110	R. Nor./Solvent	$9,063	$183,000	$11,100	$11,100
20053	0421-00-00120	R. Nor./Solvent	$4,063	$8,800	$3,960	$3,960
20054	0421-00-00130	R. Nor./Solvent	$65,625	$163,800	$73,690	$73,690
20055	0421-00-00150	R. Nor./Solvent	$19,063	$47,900	$21,560	$21,560
20056	0421-00-00200	Research South Administration	$7,948,438	$2,877,700 $4,881,600	$2,331,410	$2,331,410
20057	0422-00-00500	Administration	$39,063	$139,400	$62,710	$62,710
20058	0422-00-00600	Administration	$92,813	$204,700	$124,170	$124,170
20059	0429-00-00400	Tower	$100,313	$233,500	$135,530	$135,530
20060	0429-00-00450	Tower	$3,438	$15,300	$135,530	$135,530
20061	0429-00-00500	Tower	$58,750	$129,800	$78,710	$78,710
20062	0429-00-00600	Tower	$39,063	$86,300	$52,330	$52,330
20063	0430-00-00100	Tower	$302,188	$596,300	$241,670	$241,670
20064	0430-00-00200	Tower	$184,688	$360,400	$220,860	$220,860
20065	0430-00-00300	Tower	$11,585,000	$10,196,800	$3,256,280	$3,256,280
20066	0430-00-00400	Tower	$24,063	$47,500	$28,800	$28,800
20067	0430-00-00500	Tower	$89,688	$175,100	$106,200	$106,200
20068	0430-00-00600	Tower	$128,125	$246,600	$149,530	$149,530
20069	0431-05-00100	Solae	$9,880,625	$5,690,700	$2,556,170	$2,556,170
20070	0431-05-00200	Solae	$498,750	$981,800	$595,480	$595,480
20071	0431-05-00400	Solae	$175,000	$358,900	$217,690	$217,690
20072	0431-06-00100	Solae	$440,313	$868,600	$526,790	$526,790
20073	0431-06-00200	Tower	$101,250	$199,500	$120,990	$120,990
20074	0431-06-00300	Tower	$68,438	$137,500	$82,160	$82,160
20075	0431-06-00400	Tower	$61,250	$121,100	$73,440	$73,440
20076	0431-06-00600	Tower	$53,125	$121,500	$73,710	$73,710
20077	0431-06-00700	Purina Credit	$200,000	STIP	STIP	$315,000
20078	0432-00-00400	Tower	$41,250	$81,000	$49,125	$49,125
20079	0432-00-00500	Tower	$40,313	$79,700	$48,305	$48,305
20080	0439-00-00100	Tower	$31,000	$190,800	$115,710	$115,710
20081	0440-00-00100	Research South	$615,000	$1,222,300	$381,630	$381,630
20082	0443-00-01000	Tower	$214,400	$1,391,300	$343,400	$343,400
20083	0461-00-00300	Energizer	$50,313	$108,500	$60,230	$60,230
20084	0461-00-00850	Energizer	$488,750	$971,800	$539,670	$539,670
20085	0461-00-01610	Energizer	$37,125	$125,400	$68,910	$68,910
20086	0462-05-00100	Daycare	$322,188	$368,500	$317,220	$317,220
20087	0462-05-00400	Daycare	$65,625	$21,000	$67,780	$67,780
20088	0462-05-00450	Energizer	$2,609,688	$3,119,900	$1,005,950	$1,005,950
20089	0462-05-00650	Energizer	$27,500	$274,400	$15,240	$15,240
20090	0467-03-00100	Residential	$67,500	$49,200	$30,940	$30,940
20091	0467-03-03000	Residential	$11,250	$300,800	$5,060	$5,060
20092	0486-00-00050	Checkmark	$416,563	STIP	STIP	$301,460
20093	0486-00-00150	Checkmark	$3,438	STIP	STIP	$3,438
20094	0486-00-00210	Checkmark	$6,875	STIP	STIP	$6,875
20095	0486-00-00250	R.Nor./Solvent	$455,000	$930,500	$566,150	$566,150
20096	0486-00-00400	Checkmark	$60,313	STIP	STIP	$60,313
20097	0486-00-00450	Checkmark	$55,000	STIP	STIP	$55,000
20098	0486-00-00500	Checkmark	$646,563	STIP	STIP	$467,910
Total			$47,095,440		$19,241,000
04-20004	0462-05-0450	Energizer	$5,273,438	$6,600,000	$3,800,000	$3,800,000

9. Both appraisers placed principal reliance upon the sales comparison approach to value the subject land and improvements. We find the sales approach to be the most reliable indicator of value because of the age of the improvements and the lack of market data concerning rentals in the subject property’s immediate area.

CONCLUSIONS OF LAW

Highest and Best Use

True value in money is the fair market value of the property on the valuation date, and is a function of its highest and best use, which is the use of the property which will produce the greatest return in the reasonably near future. Aspenhof Corp. v. State Tax Commission, 789 S.W.2d 867, 869 (Mo. App. 1990).

It is true that property can only be valued according to a use to which the property is readily available. But this does not mean that in order for a specific use to be the highest and best use for calculating the property’s true value in money, that particular use must be available to anyone deciding to purchase the property. . . .A determination of the true value in money cannot reject the property’s highest and best use and value the property at a lesser economic use of the property. Snider v. Casino Aztar/Aztar Missouri Gaming Corp., 156 S.W.3d 341, 348-349 (Mo. 2005).

True Value in Money

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 purchased by one who is desiring 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, Inc. v. State Tax Commission, 564 S.W.2d 888, 897 (Mo. banc 1978).

Taxpayer has Burden of Proof

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]. See also 84 C.J.S. Taxation § 710, which states: "Even where there is no presumption in favor of the assessor's ruling, if no evidence is offered in support of the

complaint, the reviewing board is justified in fixing the valuation complained of in the amount assessed by the assessor."
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).

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).

Cost Approach

The cost approach may be based on either reproduction cost or replacement cost. The reproduction cost, or cost of construction, is a determination of the cost of constructing an exact duplicate of an improved property using the same materials and construction standards. The replacement cost is an estimate of the cost of constructing a building with the same utility as the building being appraised but with modern materials and according to current standards, design and layout.

The cost approach is most appropriate when the property being valued has been recently improved with structures that conform to the highest and best use of the property or when the property has unique or specialized improvements for which there are no comparables in the market.

While reproduction cost is the best indicator of value for newer properties where the actual costs of construction are available, replacement cost may be more appropriate for older properties. Snider v. Casino Aztar/Aztar Missouri Gaming Corp., 156 S.W. 3d, 341, 347 (Mo. 2005). (citations omitted).

Income Approach

The income approach determines value by estimating the present worth of what an owner will likely receive in the future as income from the property. The income approach is based on an evaluation of what a willing buyer would pay to realize the income stream that could be obtained from the property when devoted to its highest and best use.

When applying the income approach to valuing business property for tax purposes, it is not proper to consider income derived from the business and personal property; only income derived from the land and improvements should be considered. This approach is most appropriate in valuing investment-type properties and is reliable when rental income, operating expenses and capitalization rates can reasonably be estimated from existing market conditions. The initial step in applying the income approach is to find comparable rentals and make adjustments for any differences. Snider v. Casino Aztar/Aztar Missouri Gaming Corp., 156 S.W.3d 341, 347 (Mo. 2005). (citations omitted).

Comparable Sales Approach

The comparable sales approach uses prices paid for similar properties in arms-length transactions and adjusts those prices to account for differences between the properties. Comparable sales consist of evidence of sales reasonably related in time and distance and involve land comparable in character. This approach is most appropriate when there is an active market for the type of property at issue such that sufficient data is available to make a comparative analysis. Thus application of this approach to special use property is not appropriate. Snider v. Casino Aztar/Aztar Missouri Gaming Corp., 156 S.W.3d, 341, 347-348 (Mo. 2005). (citations omitted).

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. 1930).

DISCUSSION

This was a difficult appraisal problem and both appraisers are to be lauded for their extraordinary work in attempting to determine value for the subject property – a reasonably nice, but misplaced corporate headquarters complex.

Although this complex is in close proximity to the central business district of St. Louis, it is clearly separated from the core business district by a highway and the railroad tracks. In a town with an overabundance of available Class B office space, this property will not rise to the top simply because of its less desirable location. When this location is coupled with a clearly stagnant market, a sale of the subject at a central business district rate is highly unlikely.

Neither appraiser was able to locate sales of office space in the immediate area south of Highway 40. The City’s appraiser used sales of buildings in the central business district and adjusted those sales downward 5% to account for the subject property’s inferior location. Because no information existed to make a paired sales analysis, this adjustment was necessarily subjective.

Complainant’s appraiser used more suburban sales and adjusted them upward for the subject property’s superior location. Again, because there were no sales which would form the basis of a paired sales analysis, this location adjustment was also subjective.

While we tend to favor the use of sales closer rather than further away from a property under appeal, in this instance, because of the deficiencies in the subject property’s location, sales of more suburban properties tend to more accurately reflect the subject property’s actual market value.

We are simply not persuaded that this property derives a significant increase in value because of its close proximity to the central business district.

ORDER

The assessed values determined by the Assessor and approved by the Board of Equalization, are SET ASIDE. The Commission sets market value of the subject property as set forth in paragraph 8 above.

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 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 City of St. Louis 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 20, 2006.

STATE TAX COMMISSION OF MISSOURI

_____________________________________

Luann Johnson

Hearing Officer

Certificate of Service

I hereby certify that a copy of the foregoing has been mailed postage prepaid this 20^th day of January, 2006, to: William Falk, 500 North Broadway, Suite 2000, St. Louis, MO 63102-2147, Attorney for Complainant; Carl W. Yates III, Assistant City Counselor, 314 City Hall, St. Louis, MO 63103, Attorney for Respondent; Ed Bushmeyer, Assessor, 120 City Hall, St. Louis, MO 63103; Ronald Leggett, Collector, 110 City Hall, St. Louis, MO 63103.

_______________________________

Barbara Heller

Legal Coordinator