State Tax Commission of Missouri

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.

Methods of Valuation

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).

Missouri courts have approved the comparable sales or market approach, the cost approach 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).

Opinion Testimony by Experts

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; State Board of Registration for the Healing Arts v. McDonagh, 123 S.W.3d 146 (Mo. SC. 2004); 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, 2005. 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).

Complainant met its burden of proof in this appeal. The opinion of value tendered on behalf of the Complainant by Exhibit A, the supporting documentation of Exhibit B, and the testimony of Mr. Kramer met the required standard of substantial and persuasive evidence. The valuation determined under the income approach, relying on the actual income and expenses was representative of what a knowledgeable investor would pay for the subject hotel real property. The presumptions of correct assessment were rebutted by the actual income and expense for 2004 attributable to the subject property.

The fact that Complainant’s witness was not a licensed or certified appraiser did not render his valuation in admissible or flawed. Mr. Kramer demonstrated expertise in hotel/motel valuation in the development of his income approach. His testimony established he possessed more than sufficient training and experience in the specific area of hotel/motel valuation and the hotel/motel industry, and more importantly with regard to the subject hotel, to qualify as an expert for this particular valuation problem. The only shortcoming observed by the Hearing Officer was the rounding down in the indicated value by just over $85,800. Exhibit A. The Hearing Officer finds in this case, as in most cases, a simple round to the closest $100 is appropriate.

The true value in money of the subject property on January 1, 2005, based on its actual income stream was $6,985,800, as developed by the income analysis set forth in Exhibit A.

Presentation of Evidence in Commercial Appeals

Notwithstanding, that Complainant established the fair market value for the subject property, the present case provides a good example of how not to present a case on overvaluation before the Commission. The Commission has for over a decade operated under a procedure of having parties prefile both exhibits and written direct testimony. This is done through a scheduling order, which also establishes a time frame for the filing of objections to exhibits and written direct testimony and responses thereto, in advance of the evidentiary hearing.

In the present case, Complainant elected to file an Income Valuation Sheet and Net Operating Income documents, along with the written direct testimony of Mr. Kramer. Mr. Kramer’s testimony consisted of only seven questions, none of which identified the documents contained in Exhibit A. Nor did the written direct testimony provide any narrative explanation of either who or how the Income Valuation Sheet was developed or the source of the information in the Net Operating Income documents. Respondent did not file any objections to either of Complainant’s exhibits, in accordance with the scheduling orders issued in the case. Scheduling orders routinely, as was done in this instance, provide for filing of objections to both written direct testimony and exhibits within fifteen (15) days after the written direct testimony has been filed.

The Commission has, in other case similar to this where the written direct testimony failed to lay the necessary foundation for other exhibits, sustained timely filed objections on the ground of lack of foundation being established by the prefiled testimony. In the present case, the Hearing Officer deemed the particular objection as to lack of foundation as having been waived when no objection was filed within fifteen days after the filing of the written direct testimony.

The Commission rule on written direct testimony is quite clear – “Written direct testimony must be as complete and accurate as if it were oral testimony, …” 12 CSR 30-3.060.

When properly prepared written direct testimony is filed in cases before the Commission, the necessary foundation is laid for any exhibits which a party seeks to offer into evidence. The direct testimony at trial then can and should simply consist of having the witness identified on the stand and then identifying the exhibit which is his or her written direct testimony. The witness can then be tendered for cross-examination.

However, in this case, due to the failure of Complainant to provide written direct testimony from Mr. Kramer which was actually in accord with the Commission rule, the Hearing Officer granted Counsel for Complainant leeway (as this was Counsel’s first appearance before the Hearing Officer) to present oral testimony, all of which, could have and should have been presented to the Commission in Exhibit B. Exhibit B failed in anyway to present even the most fundamental testimony to establish the education, training and experience of Mr. Kramer. This should have been done. Exhibit B failed completely to lay any foundation for Exhibit A. This should have been done. Exhibit B totally omitted any information which would have established that Mr. Kramer had in fact developed the Income Valuation Sheet (his appraisal) for the subject property. This should have been done. Exhibit B and A failed to provide the proper basis to establish the supporting market data for development of the base cap rate. This should have been done. Exhibit B and A failed to demonstrate that underlying facts to verify that the effective tax rate was correct. This should have been done.

The document developed by Mr. Kramer as the Income Valuation Sheet was an appraisal of the property, notwithstanding one might possibly question whether it was an objective analysis. See, §339.0503(1) & (4), RSMo. However, because Mr. Kramer did not receive a fee for his appraisal, he did not run afoul of the Missouri statues regulating real estate appraisal. The Hearing Officer is of the opinion that when a party elects to present an appraisal of a property in an appeal, even if it presents only one of the recognized approaches to value, the appraisal should generally conform to the rule which the Commission has adopted on Appraisal Evidence. 12 CSR 30-3.065.

In particular, whether presented in the exhibit which is the appraisal or in the written direct testimony of the person who performed the appraisal, an income analysis should include the following:

“A. A complete reconstructed income and expense statement for the subject property showing economic or market values for each of the following elements:

(I) Potential gross income;

(II) Vacancy and collection loss;

(III) Miscellaneous income;

(IV) Effective gross income;

(V) Operating expenses; and

(VI) Net operating income;

B. The capitalization method and rate used including all calculations, a narrative explanation of why the capitalization method is appropriate and an explanation of each element of the selected method;

C. A statement of the applicable tax levy rate;

D. Sources of actual and market expenses, income and capitalization rate figures and verification for each; and

E. A final indication of value.”

12 CSR 30-3.065(b)1.

Without going into the detailed and lengthy exercise of examining Mr. Kramer’s written direct testimony and his appraisal sheet with regard to the just referenced criteria, suffice it to say, the Hearing Officer would not give Exhibit B and page 1 of Exhibit A, very high marks as either a proper or appropriate appraisal of the subject property for a hearing before the Commission. In short, absent testimony elicited on cross-examination, in redirect, recross and redirect, Exhibits A and B on their own would not have received passing marks as an appraisal of the property for evidentiary purposes. Had this case simply have been submitted on Exhibits A & B, rather than going to evidentiary hearing to permit cross-examination, it is highly unlikely that Complainant would have met its burden of proof.

The Hearing Officer certainly recognizes that Respondent is under no obligation to present evidence in a case before the Commission. The Respondent may always rest entirely upon the presumption that the Board (or the Assessor, according to the Missouri Supreme Court) has correctly valued the property under appeal. However, when the Respondent fails to offer evidence of value, he appears to consent to the value presented by Complainant’s prima facie case (qui tacet consentire videtur - a party who is silent appears to consent). The Hearing Officer is not concluding that Exhibits A and B alone made a prima facie case in this instance.

In summary, Complainant presented a very weak case from the prefiled evidence. However, the cross-examination opened the door to allow Complainant’s Counsel to strengthen what might have otherwise been a fatally flawed case, had it been submitted on Exhibits alone.

For future reference, not just for this Complainant and its counsel, but also for other taxpayers, appraisers, tax agents, assessors and attorneys, a well presented case on overvaluation should always include written direct testimony, from one or more witnesses, which does in fact identify all exhibits to be introduced and lays the foundation for admission into evidence without need of any oral testimony at hearing, other than the simple identification of the document containing the witness’ prefiled written direct testimony. Failure to observe this most fundament evidentiary practice places a party in the potential position of having critical exhibits stricken from the evidentiary record in advance of the evidentiary hearing. A party may not always be given the benefit of having leeway extended by a hearing officer to patch up and rebuild an ill-presented case-in-chief at the evidentiary hearing.

ORDER

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 years 2005 and 2006 is set at $2,235,460.

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 and an order to the Collector to release and disburse the impounded taxes. §139.031.3 RSMo. 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.