Title: Shoosmith Bros., Inc. v. County of Chesterfield

State: virginia

Issuer: Virginia Supreme Court

Document:

Present:  All the Justices 
 
SHOOSMITH BROS., INC. 
 
v.  Record No. 032572     OPINION BY JUSTICE ELIZABETH B. LACY 
 
 
 
September 17, 2004 
COUNTY OF CHESTERFIELD 
 
FROM THE CIRCUIT COURT OF CHESTERFIELD COUNTY 
Michael C. Allen, Judge 
 
 
In this appeal, we consider whether the trial court erred 
in sustaining the County's assessment of real property 
operated as a landfill. 
I. 
Shoosmith Brothers, Inc. (Shoosmith) owns a 1,163 acre 
parcel of land in Chesterfield County.  Although the parcel is 
designated as a single tax parcel for real estate taxation 
purposes, the parcel is divided into separate tracts based on 
the use of those tracts to determine its fair market value. 
For the past 27 years Shoosmith has used 200 acres of the 
parcel as a sanitary landfill under a conditional use permit 
Shoosmith obtained from the County and a Solid Waste Facility 
Permit it obtained from the Virginia Department of 
Environmental Quality.  In 1993, the County applied the income 
capitalization method (income method) of assessment to the 
landfill property and assessed the 200 acres at a fair market 
value of $12,987,600.  The 1993 valuation has remained 
 
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constant and was the assessed value of the landfill for the 
2001 tax year. 
In March 2001, Shoosmith filed an Application for Review 
of the Assessment of the landfill property asserting that the 
property was not assessed at its fair market value because 
"business income [was] used rather than the real estate's 
rental income to estimate real estate value."  Following a 
hearing, the Board of Equalization upheld the County's use of 
the income method and the 2001 assessment of $19,859,935 for 
the entire 1,163-acre parcel.  Shoosmith appealed that 
decision to the circuit court, claiming the County improperly 
assessed the 200-acre landfill property. 
At trial, Shoosmith's expert witness, Ivo H. Romenesko, 
testified that, in his opinion, the County's assessment 
included the value of the property and of Shoosmith's ongoing 
landfill business, which meant the County was assessing the 
value of the permits.  According to Romenesko, the fair market 
value of the landfill property should be based on the value of 
the land without the permits.  To determine the proper value 
of the 200 acres, Romenesko examined the sale of four 
properties zoned agricultural or residential which Romenesko 
considered comparable and concluded that the value of the 
 
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landfill property was approximately $5,000 per acre or 
$1,000,000.1  
The County's Commercial and Industrial Appraisal 
Supervisor, Jeffrey Overbey, testified that he applied the 
income method of assessment, although it was "not the only 
approach," because it was "the preferred approach and the most 
accurate approach."  He testified that he did not consider the 
income method as an appraisal of a "going concern," and that, 
while the state and county permits affected the value of the 
property, the permits were not separately valued for real 
estate purposes.  Overbey testified that income-producing 
property such as a landfill is "bought and sold based on the 
income stream that it generates" and that the income method of 
assessment rather than the cost method is preferable.  He also 
stated that the sales of undeveloped agricultural or 
residential land that Shoosmith's expert advanced were not 
comparable sales because their values were not indicative of 
the market value of income-producing property. 
Overbey explained that, after determining that the 
highest and best use of the property was that of a landfill, 
he conducted the assessment following the methodology 
                     
1 The properties were (1) 256.82 acres at $3,349 per acre 
zoned residential (formerly agricultural) but not yet serviced 
by sewer and water; (2) 96.68 acres at $4,655 per acre zoned 
 
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prescribed in an article styled "Appraisal of Sanitary 
Landfills," by Robert L. Foreman, MAI, SRPA, a professional 
real estate appraiser, which appears as Chapter 50 of the 
third edition of the Encyclopedia of Real Estate Appraising at 
pages 1077-1092 (Edith J. Friedman, ed., 1978) (Foreman 
article).  The Foreman article stated that "[t]he only 
appropriate method of appraising a sanitary landfill is to 
arrive at the present worth of the income stream . . . [plus] 
the present worth of the reversion after the site has been 
filled" and that "[s]ophisticated assessing agencies" appraise 
a landfill on this basis.  Id. at 1083, 1085. 
The methodology set out in the Foreman article requires 
determining the annual gross income of the landfill property, 
deducting the costs expended to produce the income to 
determine the "net income" generated by the real estate, 
projecting the net income for the useful life of the landfill 
property, and discounting the projected income stream to the 
present value of the real estate by using a discount rate.  
Id. at 1083.  Applying this formula, Overbey estimated the 
annual gross income of the landfill property at $13,125,000 
and applied an estimated costs expended factor of 75.2%, which 
                                                                
agricultural; (3) 27.60 acres at $5,616 zoned agricultural; 
and (4) 42.90 acres at $5,828 per acre zoned agricultural. 
 
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resulted in an estimated net income of $3,250,000.2  Overbey 
then projected the net income over the remaining life of the 
landfill, approximately 25 years, and applied a 25% discount 
rate.  Overbey assessed the value of the 200 acres at 
$12,987,600. 
J. Brian Bergan, a property tax consultant for the 
Commonwealth who consulted with Chesterfield County on the 
Shoosmith landfill assessment, testified that the cost and 
comparable sales methods of assessment were not appropriate 
for assessing Shoosmith's landfill because there was "no 
substantiation" for the cost methodology and a lack of 
comparable sales that could be considered.   
Following the hearing, the circuit court concluded that 
the County had used an appropriate assessment methodology and 
that the assessment was a "reasonable assessment of the fair 
market value" of the landfill property.  Shoosmith filed an 
appeal raising a number of assignments of error.  We granted 
the appeal, limited to whether the trial court erred in (1) 
holding that the County's method of assessment was appropriate 
and that the County Assessor's assessment of the property was 
proper; (2) upholding the County's 2001 assessment of the 200-
acre landfill property; or (3) refusing to accept Shoosmith's 
                     
2 Overbey used estimates of the revenue and expenses 
because Shoosmith declined to provide actual figures in 
 
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expert testimony of the fair market value of the landfill 
property. 
II. 
The parties do not dispute the principles which we apply 
when reviewing a challenge to a tax assessment.  We presume 
that a county's tax assessment is correct, and the burden is 
on the taxpayer to rebut the presumption by showing by a clear 
preponderance of the evidence that its property is assessed at 
more than fair market value.  Shoosmith agrees that it must 
show that the County committed manifest error or totally 
disregarded controlling evidence in its determination of fair 
market value.  Tidewater Psychiatric Institute, Inc. v. City 
of Virginia Beach, 256 Va. 136, 140-41, 501 S.E.2d 761, 763-64 
(1998). 
Shoosmith asserts that the County committed manifest 
error by using the income method of assessment in assessing 
the landfill property.  Shoosmith's rationale for its position 
can be summarized as follows.  Under Article X, § 2 of the 
Constitution of Virginia, real estate and tangible personal 
property shall be assessed and taxed at their fair market 
value.  Intangible assets such as non-transferable use permits 
are not subject to assessment and taxation under this 
provision.  Shoosmith maintains that if the use of real 
                                                                
response to the County's request. 
 
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property requires a permit which does not run with the land, 
any assessment of that property that is based on the permitted 
use is manifestly erroneous because such an assessment 
includes an assessment of an intangible asset the permit 
represents.  In this case, state and local law required 
Shoosmith to secure permits to conduct a landfill operation on 
its land.  Those permits did not run with the land and were 
not transferable.  Because the method of assessment the County 
used factored in the income generated by a use of the land 
that Shoosmith enjoyed only by virtue of the non-transferable 
permit, the County's assessment, according to Shoosmith, 
included an assessment of an intangible asset and, therefore, 
was manifestly erroneous.   
We reject Shoosmith's premise that consideration of the 
use of property when permits are required for that use is 
improper because it constitutes assessment of the permits 
themselves.  We begin with the basic principle that real 
property is to be assessed at its fair market value and with 
the "fundamental rule that in assessing all tangible 
properties for tax purposes such properties should be assessed 
at their highest and best use."  Norfolk & Western Railway Co. 
v. Commonwealth, 211 Va. 692, 699, 179 S.E.2d 623, 628 (1971).  
These rules require consideration of a property's use when 
assessing the property.  They make no exception for uses that 
 
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depend on securing a permit from a governmental agency, and 
they do not differentiate between a use conducted pursuant to 
a transferable or non-transferable permit.  Our previous cases 
are consistent with this principle. 
In Board of Supervisors of Fairfax County v. HCA Health 
Services of Virginia, Inc., 260 Va. 317, 535 S.E.2d 163 
(2000), we considered the proper tax assessment of a hospital.  
The trial court first concluded that the county's assessment 
using the depreciated cost method was not entitled to a 
presumption of correctness because the county did not consider 
other methods of assessment.  260 Va. at 328, 535 S.E.2d at 
168.  The other available assessment methods the hospital 
presented to the trial court included an income analysis and a 
comparable sales analysis.  The former was based on net 
revenues from the hospital's real property, consisting of 
revenue from inpatient services and imputed rental income to 
the hospital from its outpatient service area.  The latter 
included a number of "arms-length" sales of hospitals.  Id. at 
327, 535 S.E.2d at 168.  We approved the trial court's holding 
that the county's assessment based on the depreciated cost 
method was erroneous because the county did not consider, 
among other things, market forces in the health care industry 
affecting obsolescence and depreciation, and we approved the 
 
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assessment made by the trial court based on health care 
industry market forces.  Id. at 331, 535 S.E.2d at 170. 
Under Shoosmith's theory, consideration of comparable 
sales of other hospitals, revenue streams from the operation 
of the hospital, and issues related to the use of the property 
as a hospital such as market forces in the health care 
industry relating to obsolescence would have been improper 
because the operation of a hospital requires a non-
transferable certificate of public necessity issued by the 
state.  Code §§ 32.1-102.3, -102.5.  In affirming the judgment 
of the trial court in Health Services, we implicitly rejected 
such a theory. 
Accordingly, we hold that consideration of the use of the 
land in assessing fair market value, even if such use requires 
non-transferable government permits, is not the assessment of 
an intangible asset.  Therefore, the County did not commit 
manifest error in assessing Shoosmith's 200-acre landfill as a 
landfill using the income method of assessment. 
Shoosmith also asserts that the County's application of 
the income method was flawed because proper use of that method 
requires determining the rental value of the land and "[o]nly 
the income attributable to the land – rent – should be 
included."  Shoosmith bases this argument on our statements in 
prior cases that economic rent was the measure to be used in 
 
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capitalizing income for fair market value determinations.  See 
e.g. Tysons International LP v. Board of Supervisors, 241 Va. 
5, 11, 400 S.E.2d 151, 154 (1991), Board of Supervisors v. 
Nassif, 223 Va. 400, 404-05, 290 S.E.2d 822, 825 (1982).  
Again, we disagree with Shoosmith. 
The cases Shoosmith cites involved properties that were 
subject to lease and the issue in each case was whether the 
economic or contract rent should be used when applying the 
income capitalization assessment method.  The use of economic 
rent is appropriate when land is under lease, but in this 
case, the landfill property is owner-operated and is not under 
lease, and there are no comparable leases of such land in 
evidence. 
The methodology the County used in applying the income 
assessment was consistent with the formula the Foreman article 
prescribed for assessing landfills.  As that article 
recognizes, if the landfill is leased and the lease data is 
available, the assessment would include that income in the net 
income attributable to the real estate.  "However, such leases 
are almost unheard of . . . , and the only way the appraiser 
can estimate a net income stream attributable to the real 
estate is to make a careful analysis of the expenses."  This 
is precisely the situation here.  The property is not under 
lease and the County applied a 75% expense factor to account 
 
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for the expenses and an "unusually high" 25% discount factor.  
See also Waste Management of Wisconsin v. Kenosha County Board 
of Review, 516 N.W.2d 695, 704-05 (Wis. 1994). 
Based on this record, we hold that the trial court did 
not err in concluding that Shoosmith failed to show either 
that the County committed manifest error in assessing the 
landfill property based on the income method or that the 
County ignored controlling evidence in determining the fair 
market value of the property at issue.  Accordingly, we will 
affirm the judgment of the trial court. 
Affirmed.