Case Title: NORTHWEST LAND v STATE TAX APPEAL

Citation: 

Docket Number: 82-176

State: montana

Court: Montana Supreme Court

Date: 1983-04-06T00:00:00Z

Document:
I N T H E S U P R E M E C O U R T O F T H E S T A T E O F MONTANA NORTHWEST LAND AND D E V E L O P M E N T O F MONTANA, I N C . , P l a i n t i f f and A p p e l l a n t , V S . S T A T E TAX A P P E A L B O A R D , MONTANA D E P A R T M E N T O F R E V E N U E , a n d MAY J E N K I N S , T R E A S U R E R , Y E L L O W S T O N E C O U N T Y , D e f e n d a n t s a n d R e s p o n d e n t s . A p p e a l f r o m : D i s t r i c t C o u r t o f t h e T h i r t e e n t h J u d i c i a l D i s t r i c t , I n and f o r t h e C o u n t y of Y e l l o w s t o n e H o n o r a b l e D i a n e B a r z , J u d g e p r e s i d i n g . C o u n s e l o f R e c o r d : F o r A p p e l l a n t : J o n e s , J o n e s a n d W o r k , B i l l i n g s , M o n t a n a F r e d E . W o r k J r . , a r g u e d , B i l l i n g s , M o n t a n a F o r R e s p o n d e n t s : H a r o l d F . H a n s e r , C o u n t y A t t o r n e y , B i l l i n g s , M o n t a n a L a r r y G . S c h u s t e r a r g u e d , D e p t . of R e v e n u e , H e l e n a , M o n t a n a F i l e d : S u b m i t t e d : March 7 , 1 9 8 3 D e c i d e d : A p r i l 7 , 1 9 8 3 C l e r k M r . J u s t i c e John Conway H a r r i s o n d e l i v e r e d t h e Opinion of t h e C o u r t . T h i s a p p e a l comes from t h e T h i r t e e n t h J u d i c i a l District i n and f o r t h e County of Yellowstone: t h e District Court having upheld a d e c i s i o n by t h e S t a t e Tax Appeal Board, s a v e a minor m a t h e m a t i c a l a d j u s t m e n t of t h e Board 's r u l i n g . The a p p e l l a n t is t h e owner of p r o p e r t y l o c a t e d i n B i l l i n g s , Montana. I n 1969, t h e a p p e l l a n t e n t e r e d i n t o a twenty-two y e a r lease w i t h t h e S.S. Kresge Company. S.S. Kresge, commonly known as K - M a r t , l e a s e d t h e a p p e l l a n t ' s b u i l d i n g and land f o r an annual r e n t a l of $1.80 p e r s q u a r e f o o t . A d d i t i o n a l l y , t h e a p p e l l a n t would r e c e i v e a p e r c e n t a g e of y e a r l y g r o s s sales beyond 7.56 m i l l i o n . I n 1980, t h e a p p e l l a n t ' s p r o p e r t y was a p p r a i s e d a t $2,732,920; $1,306,800 r e p r e s e n t i n g t h e land and $1,426, 120 r e p r e s e n t i n g t h e improvements. The Department made t h e a s s e s s m e n t based upon t h e cost approach to p r o p e r t y v a l u a t i o n . The Department r e p r e s e n t a t i v e t e s t i f i e d t h a t t h i s method was used because it is more s t a b l e and p r o v i d e s b e t t e r e q u a l i z a t i o n of v a l u a t i o n among t a x p a y e r s . The f o c u s of t h i s method is on re- placement cost less d e p r e c i a t i o n . The c r u x of a p p e l l a n t ' s argu- ment is t h a t t h e cost approach to p r o p e r t y v a l u a t i o n does not a d e q u a t e l y c o n s i d e r t h e long-term lease, c o n s e q u e n t l y , t h e a p p r a i s e d v a l u e is d i s t o r t e d . The a p p e l l a n t f i l e d an a p p e a l w i t h t h e Yellowstone County Tax Appeal Board. The Board denied r e l i e f , s t a t i n g o n l y t h a t t h e v a l u e s p l a c e d on t h e land and b u i l d i n g s by t h e Department of Revenue are f a i r and j u s t . The a p p e l l a n t t h e n took h i s case to t h e S t a t e Tax Appeal Board. A h e a r i n g was h e l d on March 1 8 , 1981. The Board upheld t h e l a n d a p p r a i s a l a t $1,306, 800, b u t reduced t h e b u i l d i n g a p p r a i s a l to $833,564 from t h e o r i g i n a l a p p r a i s a l of $1,426,120. The Board found t h a t t h e income approach to v a l u a t i o n was per- t i n e n t because of t h e e x i s t e n c e of t h e long-term lease, something a p r u d e n t i n v e s t o r would c o n s i d e r i n d e t e r m i n i n g market v a l u e . When a p p e l l a n t ' s p r o p e r t y was l e a s e d , t h e surrounding a r e a was undeveloped. P r e s e n t l y , t h e Rimrock Mall is n e a r t h e s i t e and r e n t a l rates have i n c r e a s e d markedly. The a p p e l l a n t r e c e i v e s s u b s t a n t i a l l y lower r e n t p e r s q u a r e f o o t t h a n a d j o i n i n g p r o p e r t y owners. A p p e l l a n t ' s r e n t a l is $1.80 p e r s q u a r e f o o t whereas a d j o i n i n g p r o p e r t y owners r e c e i v e from $6.50 t o $30 p e r s q u a r e foot. U n f o r t u n a t e l y , a p p e l l a n t is locked i n t o t h e lower rate d u r i n g t h e term of t h e lease, o v e r twenty y e a r s . Thus, a p p e l l a n t a r g u e s t h a t t h e p r o p e r t y is of lower v a l u e t h a n one might e x p e c t s i n c e i n v e s t o r s would n o t be w i l l i n g to purchase t h e p r o p e r t y because of its lower r e n t a l r e t u r n s . I n view of t h e s e cir- cumstances t h e S t a t e Tax Appeal Board r e a d j u s t e d t h e v a l u e of t h e improvements. They took $1.80 and d i v i d e d it by $6.50 to g e t a 28 p e r c e n t f a c t o r ; t h i s f a c t o r was used to e q u a l i z e r e n t a l income v a l u e between a p p e l l a n t s p r o p e r t y and comparable p r o p e r t ies. Then, t h e o r i g i n a l a p p r a i s a l of t h e improvements d e r i v e d from t h e c o s t approach, $1,426,120, was m u l t i p l i e d by .28 to g e t $399,314. To t h i s p r o d u c t was added t h e c a p i t a l i z e d v a l u e of t h e lease o v e r r i d e , s i n c e sums would be r e c e i v e d as r e n t a l when g r o s s sales exceed 7.56 m i l l i o n . The Board I s r e - e v a l u a t i o n y i e l d e d t h e improvements v a l u e a t $833,564. The a p p e l l a n t t h e n s o u g h t f u r t h e r r e d u c t i o n i n t h e District C o u r t , however, t h e Court a£ f irmed t h e d e c i s i o n of t h e S t a t e Tax Appeal Board w i t h a p r o v i s i o n t h a t a minor mathematical error be c o r r e c t e d . I n computing t h e v a l u e of t h e improvements t h e Board used a 28 p e r c e n t f a c t o r when it should have used a 27.69 p e r c e n t f a c t o r . I n e f f e c t , t h e D i s t r i c t C o u r t ' s c a l c u l a t i o n s were mathe- m a t i c a l l y p r e c i s e . Apparently, t h e S t a t e Board rounded t h e fac- tor to a whole number. T h i s a d j u s t m e n t changed t h e base v a l u e of t h e improvements t o $394,892, from t h e Board's f i g u r e of $399,314. On a p p e a l to t h i s Court t h e a p p e l l a n t claims t h a t : (1) t h e d e c i s i o n below was c l e a r l y e r r o n e o u s i n view of t h e evidence; ( 2 ) t h a t t h e v a l u a t i o n methods chosen by t h e S t a t e Tax Appeal Board and af f irmed by t h e D i s t r i c t Court were a r b i t r a r y and c a p r i c i o u s or c h a r a c t e r i z e d by an abuse of d i s c r e t i o n o r unwarranted exer- cise of d i s c r e t i o n ; and ( 3 ) t h a t t h e d e c i s i o n below d o e s not t a k e i n t o c o n s i d e r a t i o n t h e f a i r market v a l u e of t h e p r o p e r t y . W e f i n d no merit i n any of t h e a p p e l l a n t ' s c o n t e n t i o n s and we a c c o r d i n g l y uphold t h e D i s t r i c t Court 's judgment. I n r e l a t i o n to t h e f i r s t i s s u e , a p p e l l a n t c i t e s t h e s i x - p a r t t e s t t o be used i n d e t e r m i n i n g whether or not a t a x p a y e r h a s c a r r i e d h i s burden when he claims h i s p r o p e r t y w a s a s s e s s e d in- e q u i t a b l y . I n such a s i t u a t i o n : " ' [ I l t is e s s e n t i a l t h a t t h e t a x p a y e r prove (1) t h a t t h e r e are s e v e r a l o t h e r p r o p e r t i e s w i t h i n a r e a s o n a b l e area similar and com- p a r a b l e to h i s ; ( 2 ) t h e amount of t h e a s s e s s m e n t s on t h e s e p r o p e r t i e s ; ( 3 ) t h e a c t u a l v a l u e of t h e comparable p r o p e r t i e s ; ( 4 ) t h e a c t u a l v a l u e of h i s p r o p e r t y ; ( 5 ) t h e a s s e s s m e n t complained o f ; ( 6 ) t h a t by a com- p a r i s o n h i s p r o p e r t y is a s s e s s e d a t a h i g h e r p r o p o r t i o n of its a c t u a l v a l u e t h a n t h e ratio e x i s t i n g between t h e a s s e s s e d and a c t u a l v a l u a t i o n s of t h e s i m i l a r and comparable pro- p e r t i e s , t h u s c r e a t i n g d i s c r i m i n a t i o n s . ' " Department of Revenue v. S t a t e Tax Appeal Board ( 1 9 8 0 ) 1 Mon t . I , 613 P.2d 6911 694-6951- 33 s~.R&P.- 1 0 6 3 , 1066-67; ( q u o t i n g Maxwell v. S h i v e r s ( 1 9 6 5 ) , 257 Iowa 575, 133 N.W.2d 709, 7 1 1 ) . Upon thorough review of t h e record it is obvious t h a t t h e a p p e l l a n t d i d n o t meet its burden. The test is meant to r e q u i r e a t least comparative v a l u a t i o n and a s s e s s m e n t i n f o r m a t i o n ; something t h a t t h e a p p e l l a n t f a i l e d t o show. The m o s t t h a t a p p e l l a n t showed was t h a t comparable p r o p e r t i e s were a l s o a s s e s s e d by using t h e cost approach to v a l u a t i o n . T h i s t e n d s t o show e q u a l i t y among t a x p a y e r s , n o t i n e q u a l i t y . The District C o u r t w a s c o r r e c t i n upholding t h e d e c i s i o n of t h e S t a t e Board. Next, a p p e l l a n t c h a l l e n g e s t h e c h o i c e of v a l u a t i o n methods used by t h e S t a t e Tax Appeal Board and af firmed by t h e District C o u r t . S p e c i f i c a l l y , a p p e l l a n t c h a l l e n g e s t h e use of $6.50 as a c o m p a r a t i v e r e n t a l r a t e used to f i n d t h e 28 p e r c e n t f a c t o r . A p p e l l a n t c o n t e n d s t h a t t h e f i g u r e of $7.50 s h o u l d have been u s e d , t h e s q u a r e f o o t r e n t a l c h a r g e of t h e Rimrock Mini-Mall; which a p p e l l a n t c l a i m s is more comparable to t h e K - M a r t p r o p e r t y . A p p e l l a n t also d i s p u t e s t h e method used to determine t h e percen- t a g e l e a s e o v e r r i d e . The S t a t e Board used t h e mortgage e q u i t y approach. A p p e l l a n t a r g u e s t h a t o t h e r methods could have been used. I n a p p e l l a n t ' s view, t h e c h o i c e of t h e s e methods was a r b i t r a r y and c a p r i c i o u s or c h a r a c t e r i z e d by a n abuse or unwarranted e x e r c i s e of d i s c r e t i o n . W e f i n d s u f f i c i e n t evidence i n t h e record to j u s t i f y t h e B o a r d ' s c h o i c e of $6.50 a s a comparative r e n t a l f i g u r e . W e a g r e e w i t h t h e District Court when it s a i d : " [ i ] t is w i t h i n t h e Board I s p r o v i n c e a s f a c t - £ i n d e r t o g i v e c e r t a i n evidence more w e i g h t t h a n o t h e r e v i d e n c e . The Board's c h o i c e of t h e lower amount was w i t h i n its power and s i n c e t h e r e is evidence i n t h e r e c o r d to s u p p o r t such f i n d i n g it must s t a n d . " Concerning t h e use of t h e mortgage e q u i t y approach; a p p e l l a n t has not shown how it is unacceptable or a r b i t r a r y , r a t h e r he h a s shown o n l y t h a t it is n o t advantageous when a p p l i e d to him. I t is n o t a j u d i c i a l f u n c t i o n to a c t a s an a u t h o r i t y on taxa- t i o n m a t t e r s . W e w i l l n o t e v a l u a t e t h e advantages and disadvan- t a g e s of a p a r t i c u l a r assessment method as a p p l i e d to a t a x p a y e r . "Tax a p p e a l boards a r e p a r t i c u l a r l y s u i t e d f o r s e t t l i n g d i s p u t e s o v e r t h e a p p r o p r i a t e v a l u a t i o n of a g i v e n p i e c e of p r o p e r t y or a p a r t i c u l a r improvement, and t h e j u d i c i a r y cannot p r o p e r l y i n t e r - f e r e w i t h t h a t f u n c t i o n . " Larson v. Department of Revenue ( 1 9 7 5 ) , 166 Mont. 449, 457, 534 P.2d 854, 858; ( c i t i n g B l a i r v. P o t t e r ( 1 9 5 7 ) , 132 Mont. 176, 315 P.2d 1 7 7 ) . Assessment formula- t i o n s are w i t h i n t h e e x p e r t i s e of t h e S t a t e Tax Appeal Board and w e w i l l not o v e r t u r n t h e i r d e c i s i o n s u n l e s s t h e r e is a c l e a r showing of an abuse of d i s c r e t i o n . A d d i t i o n a l l y , we n o t e t h a t t h e S t a t e Board's f i n d i n g of f a c t number V I enumerated f i v e d i f - f e r e n t methods of v a l u a t i o n ; c e r t a i n l y an i n d i c a t i o n t h a t those chosen were not done so a r b i t r a r i l y . F i n a l l y , a p p e l l a n t a r g u e s t h a t t h e S t a t e Tax Appeal B o a r d ' s d e c i s i o n does not t a k e i n t o c o n s i d e r a t i o n t h e f a i r market value of t h e p r o p e r t y . T h i s i s s u e s t r i k e s u s as being f r i v o l o u s . I n d e e d , t h e e n t i r e purpose of a s s e s s m e n t is to e s t a b l i s h a f a i r market v a l u e . The s t a n d a r d is clear: " [a111 t a x a b l e p r o p e r t y must be a s s e s s e d a t 100% o f its market v a l u e . . . " S e c t i o n 15-8-111(1) MCA. "Market v a l u e is t h e v a l u e a t which p r o p e r t y would change hands between a w i l l i n g buyer and a w i l l i n g seller, n e i t h e r being under any compulsion to buy or to sell and b o t h having r e a s o n a b l e knowledge of r e l e v a n t f a c t s . " S e c t i o n 1 - 8 - 1 1 1 2 ) ( a ) , MCA. The Board was c l e a r l y c o g n i z a n t of t h e market v a l u e s t a n d a r d . I n its f i n d i n g s of f a c t t h e Board s t a t e d : " [ i ] t is Montana law t h a t p r o p e r t y should be taxed a t its market v a l u e . " A p p e l l a n t relies h e a v i l y on s t a t e m e n t s made by its w i t n e s s e s to t h e e f f e c t t h a t a buyer would n o t purchase t h e p r o p e r t y a t its a s s e s s e d v a l u e . I n o t h e r words, a p p e l l a n t claims t h a t t h e a s s e s s e d v a l u e e x c e e d s t h e market v a l u e . The term market v a l u e is e l u s i v e , e s p e c i a l l y when c o n s i d e r i n g t h e sort of p r o p e r t y i n v o l v e d i n t h i s case. What t h i s Court s a i d many y e a r s ago still a p p l i e s today: " [ t l h e v a l u e of p r o p e r t y is a matter of o p i n i o n , . . . C o u r t s cannot be c a l l e d upon, i n e v e r y i n s t a n c e , to settle d i f f e r e n c e s of o p i n i o n i n t h i s r e g a r d between t h e a s s e s s i n g o f f i c e r and t h e p r o p e r t y owner. O t h e r w i s e , c o u r t s would be con- v e r t e d i n t o a s s e s s i n g b o a r d s . . . " Danforth v. L i v i n g s t o n ( 1 9 0 0 ) , 23 Mont. 558, 563, 59 P. 916, 917; see also, S t a t e ex r e l . Snidow v . Board of E q u a l i z a t i o n ( 1 9 3 2 ) , 9 3 Mont. 1 9 , 45, 17 P.2d 68, 76. Absent a clear showing of an abuse of d i s c r e t i o n , t h e Board I s d e c i s i o n must s t a n d . Based upon t h e f o r e g o i n g , w e a f f i r m t h e judgment of t h e District C o u r t . H W e Concur: Chief J u s t i c e \