Case Name: CAF INVESTMENT COMPANY v. SAGINAW TOWNSHIP
Court: Michigan Supreme Court
Jurisdiction: Michigan
Decision Date: 1981-02-24
Citations: 410 Mich. 428
Docket Number: Docket Nos. 60744, 60745
Parties: CAF INVESTMENT COMPANY v SAGINAW TOWNSHIP
Judges: Coleman, C.J., and Kavanagh and Levin, JJ., concurred with Ryan, J.
Reporter: Michigan Reports
Volume: 410
Pages: 428–509

Head Matter:
CAF INVESTMENT COMPANY v SAGINAW TOWNSHIP
Docket Nos. 60744, 60745.
Argued January 11, 1979
(Calendar No. 3).
Decided February 24, 1981.
Rehearing denied 411 Mich 1119.
C.A.F. Investment Company challenged the 1971 property tax assessment by Saginaw Township of real property which the plaintiff leases to S.S. Kresge Company on a long term for a K-Mart store. For the years now in dispute, 1971 through 1975, the actual rental income to the plaintiff under the terms of the lease was relatively low, but expert witnesses for both parties have conceded that the lease fairly reflects economic conditions for 1963, the year the lease was made. The valuation of the property by the township in 1971, $1,442,364, was computed from a capitalization of "economic rental value” derived from an analysis of the operations of similar K-Mart stores. The plaintiff argued that the true cash value should be determined by capitalizing the actual rental income under the terms of the lease, and that the valuation should have been $787,500 for 1971. The State Tax Commission essentially sustained the township’s assessment; the Supreme Court reversed the decision of the commission, and remanded to the newly formed Tax Tribunal for a hearing de novo to determine the true cash value of the property based upon the actual income from it. 392 Mich 442. Upon remand the Tax Tribunal predicated valuation on the amount of income the plaintiffs property was "capable of producing” for the years 1971 through 1975, which were by then included in the dispute. The Court of Appeals, D. P. Walsh, P.J., and Quinn and Stair, JJ., reversed and remanded to the Tax Tribunal for a redetermination in accordance with the opinion of the Supreme Court (Docket Nos. 28515, 28516). Defendant appeals, arguing that the decision did not require the valuation of the plaintiff’s property to be based solely upon the actual rent. In an opinion by Justice Ryan, joined by Chief Justice Coleman and Justices Kavanagh and Levin, the Supreme Court held:
References for Points in Headnotes
[1, 22] 5 Am Jur 2d, Appeal and Error § 820 et seq.
[2, 22] 5 Am Jur 2d, Appeal and Error § 744 et seq. 46 Am Jur 2d, Judgments §§ 400, 416.
[3, 4, 12, 15, 17, 18, 21, 23, 25, 26] 33 Am Jur 2d, Federal Taxation ¶ 1052.
72 Am Jur 2d, State and Local Taxation § 761.
[5-9,11-20, 23-26, 28-31] 34 Am Jur 2d, Federal Taxation ¶ 8960 et seq. 72 Am Jur 2d, State and Local Taxation §§ 761, 763.
[6, 8, 25] 72 Am Jur 2d, State and Local Taxation § 759.
[7] 72 Am Jur 2d, State and Local Taxation §§ 759, 770 et seq.
[9-12,16] 72 Am Jur 2d, State and Local Taxation § 768.
[10] 34 Am Jur 2d, Federal Taxation ¶ 1861.
[13] 72 Am Jur 2d, State and Local Taxation §§ 759, 765, 766.
[19] 72 Am Jur 2d, State and Local Taxation § 763.
[20] 72 Am Jur 2d, State and Local Taxation §§ 759, 761.
[22] 72 Am Jur 2d, State and Local Taxation § 787.
[24] 72 Am Jur 2d, State and Local Taxation § 754.
[27, 28] 71 Am Jur 2d, State and Local Taxation §§ 125, 127.
[30] 72 Am Jur 2d, State and Local Taxation § 770 et seq.
[31] 73 Am Jur 2d, Statutes § 271.
1. It was presumptuous for the Tax Tribunal to embark upon a legal analysis of a question that was clearly presented to and decided by the Supreme Court on the prior appeal. The doctrine of the law of the case is that if an appellate court has decided a legal question and remanded the case for further proceedings, the legal questions thus decided will not be differently decided on a subsequent appeal in the same case where the facts remain materially the same. The controlling facts in this dispute remain virtually identical with those which obtained when the dispute was first decided by the Supreme Court, other than the extension of the valuations through 1975. The appraisals submitted by the parties to the Tax Tribunal, in essence, used the same methods of valuation and arrived at virtually the same values as had been presented before. The Tax Tribunal relied on an appraisal which substituted the economic rental, or hypothetical income, for the actual rent of the plaintiff’s property under the lease, despite the Court’s prior rejection of that criterion as a proper basis of valuation. The error in basing valuation upon the rental value of comparable property was clearly stated in the prior decision of the Court. In its decision upon remand the Tax Tribunal has attempted to justify essentially the same method of evaluation that was held to be erroneous; in fact, it used the same "economic rental” figure of $2 per square foot which the State Tax Commission had used in its calculations. The conclusions by the Tax Tribunal that the prior decision required only that actual income be "considered”» in determining true cash value, and that actual income could then be ignored because it did not accurately reflect current rates of return on comparable prop erty on the market, underestimates the significance the Court attached to actual income. All the appraisers testified that the capitalization of income method was the best indication of value. Commercial investors rely heavily upon cash flow represented by the capitalization of actual income to judge the fair market value of property. Once that method of valuation had been chosen, consideration of "economic income” as provided by statute was imperative. The prior decision left no doubt that "economic income” meant nothing other than actual income under the circumstances of this case.
2. A calculation under the capitalization-of-income method yields a projected income figure. Often that figure alone will reflect the fair market value of the property. The defendant argues that any projected income figure calculated on the basis of actual income evaluates only the lessor’s interest in the property, and that the lessee has a measurable interest in the land due to the economic advantage it enjoys by renting property for an amount that is less than the prevailing rate in the current market. Whatever merit that proposition might have in the science of real estate appraisal, consideration of a so-called lessee’s interest by the means employed by the Tax Tribunal is foreclosed by the Court’s prior decision. The testimony of the tax commission experts was that in order to evaluate the entire property, consisting of both the lessor’s and lessee’s interest, anytime actual income fell below the market rent or hypothetical income of comparable property actual income would be ignored, and it was ignored in this case for that very reason.
3. True cash value must equal the fair market value of the property to the owner. All experts conceded that economic income most accurately reflected that value. In this case, economic income is nothing other than actual income, since for the years in question the lease rental reflected current economic circumstances and bore a demonstrable relation to true cash value. To equate economic income with hypothetical income in every situation where actual rent under a long-term lease was less than the prevailing market rental would be to ignore the effect of the lease on a prospective investor’s judgment regarding the fair market value of the property. That was the very situation confronting the Court on the first appeal. The consideration of actual income may not be diluted by reference to the potential income of comparable property.
4. In other cases there may well be other circumstances or considerations that necessarily require adjustment to the projected actual income figure to arrive at an accurate true cash valuation. The first opinion mentioned some to illustrate that a projected income figure arrived at by capitalization of actual income may not reflect a truly accurate picture of a property’s fair market value, not as reasons to ignore the use of actual income in calculating projected income in this case.
5. The defendant’s argument that this method of valuation violates the constitutional requirements of uniformity of assessment and due process begs the question. The touchstone of uniform assessment is the true cash value or usual selling price of the property. Assessment decisions must recognize limitations or restrictions which have a bearing on the selling price of property. Parcels of real property may have similar physical characteristics, but differences in economic factors will determine their usual selling price. Properties encumbered by different lease terms, zoning restrictions, or deed restrictions, although physically similar, would not have the same cash value on the open market. It would be incongruous, indeed violative of the rule of uniformity, to assess two parcels of real property the same despite the fact that the usual selling prices are different. There is no violation of the requirements of uniformity or due process in an assessment premised on true cash value as defined by the Court.
6. In failing to use actual income as the basis of its capitalization of income, the Tax Tribunal disregarded the mandate of the Court in its first decision in this case and thereby committed error. The Tax Tribunal is directed to enter a specific order forthwith using figures set forth in the Court’s opinion, and put an end to this protracted litigation.
Justice Levin signed the opinion of the Court, and also wrote separately to address some of the considerations treated in the other opinions.
1. The constitutional standard is the market, "true cash value”. If a desirable tenant is able, in an arm’s-length bargain, to obtain more favorable terms than a less desirable tenant, the rent it pays is nevertheless the going market rate for such a tenant. If a desirable tenant obtains favorable terms, it is because that tenant is desirable; the rent it pays is the fair market value of having that desirable tenant. If another tenant pays a higher rent, it is not because the property is worth more but because the actual market value of its tenancy is of less value, due, for example, to the greater anticipated wear and tear to the property or greater financial insecurity of the tenant. In any case, what another tenant might pay is irrelevant to determining the true cash value of property encumbered by a long-term lease. The value of the property is its value as it is, i.e., as encumbered. To say that its value would be higher if it were rented to another tenant when it cannot be rented to another tenant is to deny the legal and economic reality of the encumbrance. The value of property is affected by a lease in the same manner as its value is affected by zoning or deed restrictions.
2. The argument that the lessee’s interest should be valued as well as the lessor’s interest is an alternative form of the argument that the property should be valued at what another, hypothetical tenant would pay: the lessee’s interest is the degree to which the lease is "favorable” to him, i.e., the difference between what he is paying and what the owner would presumably obtain from another tenant. Thus, valuing the lessee’s interest again seeks to value the property as if it were unencumbered when it is actually encumbered. Moreover, valuing the lessee’s interest would be to substitute a hypothetical rental for the rental reserved in the lease. To do so would be to eliminate all relation to actual income and thus to reverse, sub silentio, the first CAF decision. Separately valuing the lessee’s interest and combining it with the lessor’s interest will produce a result diametrically opposed to the original CAF opinion.
3. The taxing authorities should not be permitted to have it both ways — either the property is encumbered by the lease or it is not. No one could be found to buy the property for what even the owner claims it is worth unless it were "encumbered” with the K-Mart lease and the assured cash flow that goes with it. The Court cannot legitimately allow local taxing authorities or the Tax Tribunal to evaluate the property as if there is a K-Mart lease encumbrance, which alone makes it saleable at any price that would justify current assessments, and ignore the rent reserved in that lease. To ignore the lease denies the circumstances which made construction of the structure possible. The lease embodies the commitment of the lessor and the lessee to a long term of occupancy by the lessee, each thereby creating value which might not otherwise exist and forgoing other opportunities. This kind of large specialized structure would not have been constructed but for the "encumbrance” of a long-term lease from some desirable lessee. Since there would be no structure to tax without such an encumbrance, it is not appropriate to evaluate the property as if it could he rented to someone else. Cases holding that severable interests in natural aspects of the land must be assessed as part of the real estate, although separately owned, were decided pursuant to specific statutory directives and are inapposite. In them the identifiable, severable interests were clearly subject to ad valorem taxation and the question was to whom they should be assessed, the owner of the fee or the owner of the severed interest. In this case the question is whether a leasehold is, for ad valorem tax purposes, an interest separate and apart from the fee, and, if so, to whom it should be assessed. The fee cannot be valued apart from the lessee’s use and the mutual commitments of the lessor and lessee in the lease.
4. Even if it were proper to value the lessee’s interest or the rental that could be obtained from another tenant, there is no probative evidence in this record which would support a valuation other than one based upon the income actually derived from the property. In reaching its result the Tax Tribunal relied on evidence of leases asserted to be comparable. The evidence of comparability in each instance was either inadequate or nonexistent. The only evidence offered was of leases in other years with other tenants or with K-Mart in other communitieSj all a considerable distance from Saginaw. Nor is there any basis for assuming that K-Mart would have paid in 1971 and 1975 for the lease of an 8- or 12-year-old building as much as it was then willing to pay for a brand new building located in a different community.
5. The township presented an estimate of true cash value based on the reproduction cost approach. But both of the township’s witnesses testified that an existing lease had no effect on the estimate arrived at by the cost approach. The Court’s first CAF decision requires that the long-term lease be considered and that any method of valuation which does not take into account the effect of a lease be rejected. Moreover, there was no evidence indicating that buyers and sellers of commercial property use a cost approach, in sharp contrast to evidence that buyers and sellers of commercial property use the capitalization of income approach. If buyers and sellers of commercial property do not use a technique, estimates of value derived from it have no bearing on the market price of the property, the constitutional standard.
6. The only evidence of comparable sales used in the township’s market analysis is equally faulty. The witness relied on only two sales of K-Mart stores, one in 1968 and one in 1965, in the largest and second-largest metropolitan areas of the state. There is no reason to suppose that these sales of what were then almost new buildings in metropolitan areas are reliable indicators of what an 8- or 12-year-old building in Saginaw Township would sell for in 1971 or 1975. These sales values years before the tax years in question and leases of other stores built at different times in widely differing locations across the state are not probative of what a current market rental would be for this building. When taxing authorities wish to disregard a lease, the burden is on them to come up with something better than the highly artificial evidence produced regarding rentals and sales in altogether different locations of buildings built many years apart. It was "error of law or adoption of wrong principles” for the Tax Tribunal to uphold the assessment although the taxing authorities failed to present any probative evidence to support the assessment and the lessor presented substantial unimpeached evidence.
7. Justices Moody and Williams say that the paramount consideration is unformity. Justice Moody’s underlying concern appears to be that if commercial property is permitted to be assessed on the basis of actual income from a long-term lease, owners will be able to obtain a tax advantage by setting a lease rate lower than the market rate. Owners of other types of property assessed by a comparable sales or reproduction method would therefore pay a non-uniform rate when compared to commercial property owners. That concern is misplaced because no rational owner of income-producing property would choose to reduce rental income by an amount many times greater than could possibly be saved in taxes. Justice Ryan correctly points out that uniformity is achieved by adhering to the constitutional market-based standard, true cash value. If assessors adhered to that standard, all assessments would, perforce, be uniform at 50% of true cash value. Uniformity is not achieved by adhering to a single approach to valuation. The cost approach may be followed by many assessors, but since there is no real relationship between reproduction cost and value, reproduction cost has to be adjusted for economic obsolescence. That introduces a highly subjective element, one frequently responsible for the lack of uniformity in assessments. There is no guideline for economic obsolescence. Neither is uniformity advanced by attempting to assess all property which appears similar as if it were of equal value. Neither physical similarity nor reproduction cost is the standard, and any attempt to avoid the value set for the property by the market is to dilute, rather than strengthen, uniformity of assessment.
8. If there truly are a substantial number of situations in which a current rental market in excess of reserved rental creates a favorable lease from the lessee’s standpoint with the consequence that the property does not support its fair share of the tax burden, the Legislature can rectify the situation by allowing local taxing authorities to tax that favorable lease to the lessee. Similarly, the concern that a property owner will withhold income information from a tax assessor except when such information is to the owner’s advantage is exaggerated. In those instances where the owner of a business also owns the property, the income derived may be more reflective of the business conducted on the property than the value of the property and therefore not a reliable indicator of the value of the property. When such information is relevant, as in the instant case, to determining the true cash value of the property, assessors may have an implied right to obtain such information under the statute which provides that income is a factor to be considered in determining the property’s selling price. To the extent that the present statute is inadequate and the power to set assessments does not constitute an adequate enforcement mechanism, the Legislature, again, can provide a solution.
Justice Fitzgerald, dissenting, wrote that the Supreme Court, when it decided this case in 1974, required only that actual income be considered by the Tax Tribunal in determining true cash value; it did not require that it necessarily be used in all circumstances and certainly not that it be used exclusively. The Court set forth a non-exhaustive list of other items to be considered in addition to those listed in the statute. Another factor which may properly be taken into account here is the value of the lessee’s interest in the property. The Court of Appeals misconstrued the Supreme Court’s previous holding as requiring that actual income "must constitute” the basis for the valuation. Actual income, if it is relevant to determining the usual selling price, is only one of many items to be considered, and it may be rejected if it is inappropriate as applied to the facts of a particular case. The Tax Tribunal considered actual income during its proceedings upon remand and rejected its use in this case because, among other things, the relationship between the plaintiff and its tenant, and their lease were not typical of the normal market. The Tax Tribunal found that a limited number of developers for K-Mart enjoyed a favored status and that the tenant, being a highly desirable commercial tenant, could receive more favorable terms than a more marginal tenant. The Tax Tribunal was correct in rejecting the plaintiff’s appraisal because it was predicated solely on the income from the lessor’s interest in the property. Therefore, the Tax Tribunal suificiently complied with the Court’s previous opinion.
Justice Williams agreed with Justice Ryan that the Tax Tribunal, upon remand, by using the same assessment method, capitalizing "market” rent instead of actual rent, directly violated the Court’s first opinion in this case and that the case must be reversed and remanded again. However, he did not agree with Justice Ryan that the first opinion remanded for a determination based on actual income, that it forbade reference to potential income of comparable property, or that the actual per-square-foot rental value need only be "plugged into” a formula to arrive at projected income. The first opinion stated that "consideration” of the statutory terms does not require that the Tax Tribunal make its determination of projected income upon any one or all of the items; "consideration” may well indicate that the application of some or all items is inappropriate. The tribunal is not limited to "plugging in” actual rent because the statute requires the assessor to reach a particular result, i.e., "cash value”, not to apply a particular formula such as income capitalization. The assessing agency may use any accepted formula so long as it recognizes the various components of value set forth in the statute. Insofar as "economic income” is considered, that term must be interpreted as meaning actual income. Justice Williams agreed with Justice Moody as to the importance of the constitutional requirement of uniformity. But obviously, all property does not require the same assessment because all property is not the same. The resolution of the issue of the unfavorable lease and consideration of all of the statutory components of valuation of property must first be made by the assessing agency, with a rather restricted judicial review, and the case should be remanded for further proceedings.
Justice Moody dissented:
1. There is no suggestion in the Supreme Court’s opinion, when it first decided this case, that actual income must constitute the basis for valuation. The Court held that actual income cannot be ignored and must be considered in any determination of true cash value. Consideration of the various factors may well indicate that the application of some or all enumerated factors is inappropriate. It is one thing to say that a particular item must be "considered” in terms of determining value; it is totally another thing to say that a particular item must “constitute the basis” of valuation. There is no support for the conclusion that actual income must be the starting point for calculating value. The Court has previously stated that economic or actual income is to be considered. However, the "present economic income of structures” is merely one of a number of statutory terms which must be considered in deter mining true cash value. While one or another of the terms may control in a given case, all terms must be considered equally.
2. The definition of economic income as actual income, and the rejection of the reproduction cost and market approaches, do not comport with the decision of any other jurisdiction in the United States which has considered the question. Other courts construing similar statutory language have applied similar analyses in cases of a property tax assessment on land encumbered by a long-term unprofitable lease. The majority of jurisdictions have concluded that where there is evidence that a long-term lease was made under distress or boom conditions which affects the actual rent, the weight to be given to the actual rent must be discounted accordingly. The effect of reliance on actual income in determining tax assessments is the destruction of the principle of uniformity in taxation; and assessment based on full, potential earning capacity is the most fundamentally fair and even-handed method of distributing the tax burden. Thus, reproduction cost and market approaches are as equally valid as the income capitalization approach in calculating true cash value of property. The effect of reliance on actual income is to give tax relief and, therefore, to subsidize the unwise businessman at the expense of the wise businessman and the other taxpayers of the state. The statutory language is sufficient to include the income which could be obtained by the proper and efficient use of the property. To hold otherwise would be to penalize the competent and diligent and to reward the incompetent or indolent.
3. While the statutory definition of true cash value contains various terms, it is without doubt that the most important element in the commercial setting is the "present economic income of structures”. Economic income will almost always dictate the level of commercial property tax assessment. Thus, by defining economic income as actual income, the Court shows a rather narrow and unrealistic attitude toward property tax assessment in Michigan. Property tax by its nature is cumulative; it is a táx on every right and interest that attaches to real property. A proper assessed valuation, therefore, must include the value of all the rights which inhere in the property, including the right to current possession under a lease. Where the rent paid is less than the current market rate for the right of possession, the value of the right will increase in proportion. In order to establish the true value of land, the value of the right to receive income, the lessor’s interest, must be combined with the value of the right of possession, the lessee’s interest. Because the Court’s prior decision focuses only on the lessor’s right to receive income under the lease, a distorted view of the true cash value results. And, while it is true that any sale of the lessor’s interest in the property would reflect the unfavorable lease, a sale of the lessee’s interest would result in a rate of return which would be much higher than the relatively low rental expense would suggest. By a similar analysis, the Tax Tribunal attempted to ascertain the true cash value of the plaintiff’s property, i.e., a combination of the lessor’s interest and the lessee’s interest in the property. Such an approach is eminently fair and sensible. It truly endeavors to ascertain the "usual” selling price of the property, as mandated by the Legislature.
4. Actual income is a very limited tool in determining property tax assessment, and its use creates procedural difficulties for the taxing authorities. In addition, the class of taxpayers who are capable of making use of the actual income method is extremely limited. It is clear from testimony in the Tax Tribunal hearing that under normal circumstances the majority of taxpayers in Michigan have their property assessed by the reproduction cost approach. Only income-producing property can be assessed by use of the income capitalization approach. But even then, only when it is to the advantage of the taxpayer will the necessary information be supplied to the assessor to use the income capitalization approach for tax assessment purposes. Under this method, because there is no law that requires the taxpayer to supply this information to the tax assessor, the ability to control and manipulate the property tax assessment rests in the hands of the taxpayer alone. If the Legislature wanted actual income to be the method or basis for property tax assessment, it would have provided some independent means for the assessor to ascertain actual income. Also, it is highly unlikely that the Legislature would make such a definition for the present economic income of structures when only a limited segment of a class of taxpayers would be affected by it, particularly in view of the constitutional requirement of uniformity in property tax assessment.
5. The framers of the Constitution of 1963 considered uniformity of taxation the paramount goal of all property tax assessments. This principle requires neither mathematical equality nor matematical certitude. What is required is that similar properties within the same district be assessed on a similar basis. However, even very similar parcels of land may possess differing attributes which may lead to a disparity in tax assessment. The disparity in assessment may not constitute a violation of the principle of uniformity of treatment, but it may indicate that something is amiss. The plaintiff contends that the encumbrance on this property of a long-term unprofitable lease should form the basis for any assessment of its value. But another parcel with similar structures not encumbered by a long-term unprofitable lease would bear a considerably greater tax burden because it would be assessed by the reproduction cost method, as is most of the property in the state, rather than by the use of actual income. A disparity clearly exists here, but it is not the result of any innate differences between this property and a hypothetical property which is similar but unencumbered by the plaintiff’s lease. The disparity results because one taxpayer has saddled his property with such a lease, while another taxpayer has reaped a profit from his land. To allow business acumen of the taxpayer to form the controlling basis of property tax assessment would obliterate the principle of consistency. In addition, it would permit a taxpayer to manipulate the taxing process for his own purposes, regardless of what happens to the rest of the property owners of the state. It can hardly be said that the framers of the Constitution or the Legislature intended such a result. Valid limitations on the use of land may exist which will lead to disparate valuations of similarly situated properties. No violation of the doctrine of uniformity occurs where the tax assessors take such limitations into account. However, in each case the limitation was imposed on the property by the actions of a third party. In no case have the courts of Michigan sanctioned a limitation which was imposed on the property by the property owner.
6. If the Legislature intended the term "present economic income of structures” to mean "actual income”, it has created an arbitrary and irrational classification that cannot be sustained on equal protection and uniformity grounds. There can be no uniformity of taxation if a special group of taxpayers can claim that property tax must be based on the actual income derived from a self-imposed, unfavorable lease.
7. The Tax Tribunal, on remand, did consider actual income in evolving its assessment. It was not required to base its valuation on that factor to the exclusion of any other consideration. Because the Tax Tribunal properly determined the true cash value of the property owned by the plaintiff its assessment should be sustained.
79 Mich App 559; 262 NW2d 863 (1977) affirmed.
Opinion op the Court
1. Judgment — Appeal — Law op the Case.
A question of law decided by an appellate court will not be differently decided on a subsequent appeal in the same case where the facts remain materially the same.
2. Judgment — Appeal — Law of the Case.
A ruling of the Supreme Court in a case becomes the law of the case to govern a new trial and is not subject to review thereafter; if it is claimed that the conclusions of law reached on the former hearing were erroneous, the remedy is by a motion for a rehearing.
3. Taxation — Property Tax — Valuation — Economic Income — Actual Income — Long-Term Lease.
Economic income of real property, as used in the General Property Tax Act, means actual income where the property was rented for use as a retail store under a long-term lease which fairly reflected economic circumstances at the outset of its term, and there was no suggestion that the lease was made other than by arm’s-length negotiations; the fact that actual income was less than the rate of return on comparable property under current market conditions does not require valuation of the property based on the income which it was capable of producing at the prevailing rate in the current market (MCL 211.27; MSA 7.27).
4. Taxation — Property Tax — Economic Income — Actual Income — Words and Phrases.
"Economic income” is nothing other than the actual income of real property in a case where rental received under a long-term lease of the property reflected current economic circumstances and bore a demonstrable relationship to true cash value (MCL 211.27; MSA 7.27).
5. Taxation — Property Tax — Valuation — Income Capitalization.
The Tax Tribunal, in using the income capitalization approach to valuation of property, is not limited to the actual rental under an existing long-term lease as the sole measure of projected income and basis for capitalization; projected actual income may be adjusted for any relevant factors which are necessary to arrive at a valuation reflecting the true cash value of the property (MCL 211.27; MSA 7.27).
6. Taxation — Property Tax — Assessment — Uniformity — True Cash Value.
The touchstone of uniform assessment is the true cash value or usual selling price of the property; however, assessment decisions must recognize limitations or restrictions which have a bearing on the selling price of property (Const 1963, art 9, § 3; MCL 211.27; MSA 7.27).
7. Taxation — Property Tax — Valuation — True Cash Value.
Parcels of real property may have similar physical characteristics, but differences in economic factors will determine the usual selling price of the parcels; physically similar properties encumbered by different lease terms, zoning restrictions, or deed restrictions would not have the same cash value on the open market (Const 1963, art 9, § 3; MCL 211.27; MSA 7.27).
8. Taxation — Property Tax — Valuation.
It would violate the rule of uniformity in taxation to assess two parcels of real property the same despite the fact that their usual selling prices are different (Const 1963, art 9, § 3; MCL 211.27; MSA 7.27).
Separate Opinion by Levin, J.
9. Taxation — Property Tax — Assessment — Long-Term Lease — Actual Income.
The constitutional standard for valuation of real property is the market, ”true cash value”; if a desirable tenant is able, in an arm’s-length bargain, to obtain more favorable terms than a less desirable tenant, the rent it pays is nevertheless the going market rate for such a tenant, and what another tenant might pay is irrelevant to determining the true cash value of property encumbered by a long-term lease (Const 1963, art 9, § 3; MCL 211.27; MSA 7.27).
10. Taxation — Property Tax — Assessment — Long-Term Lease.
Valuing the lessee’s interest as well as the lessor’s interest in assessing real property subject to a long-term lease is an alternative way of valuing the property at what another, hypothetical, tenant would pay, because the lessee’s interest is the degree to which the lease is ’’favorable” to him, i.e., the difference between what he is paying and what the owner would presumably obtain from another tenant, and thus seeks to value the property as if it were unencumbered by the lease when it is actually encumbered (MCL 211.27; MSA 7.27).
11. Taxation — Property Tax — Assessment — Long-Term Lease.
Cases holding that severable interests in natural aspects of land must be assessed as part of the real estate although separately owned, pursuant to statute, are inapposite in a case where the question is whether a leasehold is, for ad valorem tax purposes, an interest separate and apart from the fee, and, if so, to whom it should be assessed; the fee cannot be valued apart from the lessee’s use and the mutual commitments of the lessor and lessee reñected in the lease (MCL 211.27; MSA 7.27).
12. Taxation — Property Tax — Assessment — Evidence.
When taxing authorities wish to disregard a long-term lease to which the commercial real property being assessed is subject and use some method other than capitalization of actual income, the burden is on them to come up with something better than highly artiñcial evidence regarding rentals and sales in altogether different locations of buildings built many years apart (MCL 211.27; MSA 7.27).
13. Taxation — Property Tax — Assessment — Uniformity.
Uniformity of assessment is achieved by adhering to the constitutional market-based standard, true cash value; if the cost approach to assessment is used, since there is no real relationship between reproduction cost and value, reproduction cost has to be adjusted for economic obsolescence, a highly subjective element frequently responsible for the lack of uniformity in assessments (Const 1963, art 9, § 3; MCL 211.27; MSA 7.27).
14. Taxation — Property Tax — Assessment — Uniformity.
Uniformity of assessment is not advanced by attempting to assess all property which appears similar as if it were of equal value (Const 1963, art 9, §3; MCL 211.27; MSA 7.27).
Dissenting Opinion by Fitzgerald, J.
15. Taxation — Property Tax — True Cash Value — Actual Income.
Actual income produced by real property, if it is relevant, must be considered in determining the true cash value of the property under the General Property Tax Act, but it need not necessarily be used in all circumstances and certainly should not be used exclusively; it may be rejected, after consideration, if it is inappropriate as applied to the facts of a particular case (MCL 211.27; MSA 7.27)
16. Taxation — Property Tax — True Cash Value — Lessee’s Interest.
Among the items which may properly be taken into account in determining the true cash value of real property under the General Property Tax Act, in addition to the items mentioned in the statute, is the value of the lessee’s interest in the property (MCL 211.27; MSA 7.27).
17. Taxation — Property Tax — True Cash Value — Actual Income — Long-Term Lease.
The Tax Tribunal correctly considered and rejected an appraisal of real property which was predicated solely on the income from the lessor’s interest in the property where it found that the relation between the owner of the property and its tenant were not typical of the normal market, and that the particular tenant, being a highly desirable commercial developer of discount stores, could receive more favorable lease terms than a more marginal tenant (MCL 211.27; MSA 7.27).
Concurring and Dissenting Opinion by Williams, J.
See headnotes 1, 2, 5, 23, 27.
18. Taxation — Valuation — Law of the Case.
Use by the Tax Tribunal, upon remand by the Supreme Court, of a capitalization of "market” rent of property with a long-term unfavorable lease instead of the actual rent under the lease must be reversed where that use directly violated the Court’s previous opinion in the matter (MCL 211.27; MSA 7.27).
19. Taxation — Valuation — Capitalization of Income.
The General Property Tax Act requires "consideration” by the assessing body of the items listed in the statute but does not require that the assessing body make its determination of projected income of property upon any one or all of the items; "consideration” may well indicate that the application of some or all of the items is inappropriate in a certain case (MCL 211.27; MSA 7.27).
20. Taxation — Valuation — Cash Value — Capitalization of Income.
The General Property Tax Act requires the assessor to reach a particular result, i.e., "cash value”, not to apply a particular formula of valuation; the assessor is not limited to "plugging in” actual rent to capitalize income but may use any accepted formula so long as it recognizes the various components of value set forth in the statute (MCL 211.27; MSA 7.27).
21. Taxation — Economic Income — Actual Income — Words and Phrases.
The term "economic income”, insofar as it is considered by the assessor in valuing property under the General Property Tax Act, must be interpreted as meaning actual income (MCL 211.27; MSA 7.27).
22. Taxation — Assessment — Long-Term Lease.
The issue of the valuation of property with an unfavorable long-term lease and consideration of the statutory items for valuation of property under the General Property Tax Act must first be addressed by the assessing body, with rather restricted judicial review (Const 1963, art 6, §28; MCL 211.24, 211.27, 211.151; MSA 7.24, 7.27, 7.210).
Dissenting Opinion by Blair Moody, Jr., J.
23. Taxation — Property Tax — Valuation — Economic Income — Actual Income.
Actual income of structures cannot be ignored and must be considered in any determination of true cash value of real property, under the General Property Tax Act; however, the present economic income of structures is merely one of a number of statutory terms which must be considered in determining true cash value, and while one or another of the terms may control in a given case, all terms must be considered equally (MCL 211.27; MSA 7.27).
24. Taxation — Property Tax.
Property tax by its nature is cumulative; it is a tax on every right and interest that attaches to real property; a proper assessed valuation, therefore, must include the value of all the rights which inhere in the property.
25. Taxation — Property Tax — Valuation — True Cash Value.
The right to current possession of real property under a lease is a right which inheres in the property, and if the rent paid for the right to possession is less than the current market rate, then the value of the right of current possession will increase in proportion; therefore, in order to establish the true value of the land in determining the property tax assessment, the value of the right to receive income, the lessor’s interest, must be combined with the value of possession, the lessee’s interest (MCL 211.27; MSA 7.27).
26. Taxation — Property Tax — Assessment — Capitalization of Income — Actual Income.
Actual income produced by real property is a very limited tool in determining property tax assessment and its use creates procedural difficulties for taxing authorities; if the Legislature had wanted actual income to be used for assessment by capitalization of income, it would have provided some independent means for the assessor to ascertain actual income, but it is highly unlikely that the Legislature would defíne the "present economic income of structures" to be actual income when only a limited class of taxpayers would be affected by it (MCL 211.27; MSA 7.27).
27. Taxation — Property Tax — Uniformity — Constitutional Law.
The framers of the Constitution of 1963 considered uniformity of taxation the paramount goal of all property assessments (Const 1963, art 9, §3).
28. Taxation — Property Tax — Assessment — Uniformity — Constitutional Law.
The principle of uniformity of taxation requires neither mathematical equality nor mathematical certitude; what is required is that similar properties with the same district be assessed on a similar basis, and if this is done, the actual amount of taxes to be paid on such property will be the same (Const 1963, art 9, §3).
29. Taxation — Property Tax — Assessment — Uniformity — Constitutional Law.
Even very similar parcels of land may possess differing attributes which may lead to a disparity in tax assessment, but that may not in itself constitute a violation of the principle of uniformity of taxation (Const 1963, art 9, § 3).
30. Taxation — Property Tax — Assessment — Limitations on Use.
Valid limitations on the use of land may exist which will lead to disparate valuations of similarly situated properties, but in each case where such a limitation has been recognized it has been imposed by a third party, not by the property owner himself (MCL 211.27; MSA 7.27).
31. Taxation — Property Tax — Economic Income — Actual Income — Long-Term Lease — Equal Protection — Uniformity.
The Legislature, if it intended the term ''present economic income of structures" as used in the General Property Tax Act to mean "actual income", has created an arbitrary and irrational classiñcation that cannot be sustained on equal protection and uniformity grounds; there can be no uniformity of taxation if a special group of taxpayers can claim that property tax must be based on the actual income derived from a self-imposed, unfavorable lease, especially where a taxpayer may choose whether to reveal the actual income and thereby require its use to control assessment valuation (US Const, Am XIV; Const 1963, art 1, §2; Const 1963, art 9, § 3; MCL 211.27; MSA 7.27).
Honigman, Miller, Schwartz & Cohn (by Charles H. Tobias and Michael B. Shapiro) for plaintiff.
Crane, Kessel & Crane for defendant.

Opinion:
Ryan, J.
We address a conflict which has a long and protracted history arising out of Saginaw Township's 1971 tax assessment of appellee's property. The original dispute between the parties was initially resolved by this Court in 1974 in a unanimous opinion written by Justice Fitzgerald. CAF Investment Co v State Tax Comm, 392 Mich 442; 221 NW2d 588 (1974). The Court reversed the decision of the tax commission and remanded to the Tax Tribunal for proceedings consistent with the opinion.
The Tax Tribunal thereafter conducted two weeks of hearings culminating in a lengthy opinion dated April 5, 1976. On appeal as of right to the Court of Appeals, the Tax Tribunal was again reversed and the case was remanded for redetermination. The Court of Appeals concluded that the tribunal failed to follow the dictates of this Court's earlier decision. CAF Investment Co v Saginaw Twp, 79 Mich App 559; 262 NW2d 863 (1977).
We have again granted leave to appeal. 403 Mich 801 (1978).
I
The facts giving rise to this dispute are exten sively stated in our prior decision and need not be repeated at length here.
It suffices to say that C.A.F. disagrees with Saginaw Township's assessed valuation of commercial property owned by the company. The property is encumbered by a long-term lease with the S.S. Kresge Company for a K-Mart store. The lease is not expected to expire, until 1998 if available options are exercised. Under the economic conditions for the assessment years now in dispute, 1971-1975, actual income under the lease is relatively low. Expert witnesses for both parties conceded, however, that the lease fairly reflects 1963 economic conditions, the year the lease was made.
When this case was here before, C.A.F. was challenging Saginaw Township's true cash valuation of $1,442,364 for the subject property. That determination had been appealed to the State Tax Commission which essentially sustained the township's earlier assessment. In making that decision, the tax commission relied heavily upon the testimony of Norman Daniels, a staff appraiser. Daniels had submitted a true cash valuation of $1,600,-000 based upon both the capitálization of income and the depreciated reproduction cost methods of appraisal. The basis for Daniels' calculation of capitalized income value was a projection of the expected 1971 rental return for comparable property. Reduced to its simplest terms, this represented an "economic rental" value, of $2.00 per square foot based upon the operations of similar K-Mart properties. Implicit in the valuation was that the property was then available to rent in the marketplace, which of course was not the case.
On appeal to this Court, C.A.F. contended that "true cash value", as defined by statute, could only be determined by reference to the actual income realized under the terms of the lease with S.S. Kresge. Basing his calculations of capitalized income value on actual income, the C.A.F. appraiser, Dean Nelson, arrived at a valuation of $787,500. C.A.F. contended that this figure accurately reflected true cash value. The tax commission's reliance upon an "economic rental" or "hypothetical income" as a basis for appraisal, C.A.F. argued, had no reasonable relationship to the usual selling price or fair market value of the property which is the constitutional and statutory standard for determining true cash value.
The tax commission defended its valuation by pointing out that C.A.F.'s actual rental figures under the lease resulted in an unreasonably low capitalized valuation. The tax commission equated the statutory language "economic income" with the appraisal term "economic rental". Thus, the tax commission contended that if property is leased under a long-term lease for a rental which in later years proves unduly low in the face of economic changes, actual rent could be ignored and the potential rental income of the property on the open market could be utilized.
Justice Fitzgerald incisively framed the issue presented to this Court as follows:
"[W]hether, under Michigan law, the tax commission was entitled to consider and give weight to evidence of valuation based upon a rate of return which comparable, unencumbered property could earn in the present marketplace in the face of an existing unfavorable long-term lease with an actual rate of return which is substantially less than the present 'going rate'." 392 Mich 442, 447.
This Court held that under the circumstances of the case presented, the answer was, "No". It was held that, as used in the statute, "economic income" meant "actual income". Id., 454. To the extent that the capitalization of income method is used for determining true cash value, the assessor was obligated to use the actual income under the existing long-term lease as the basis for his calculations. Id. The record indicated that the lease was the product of an arm's-length transaction and fairly reflected economic conditions at the outset. To the extent that the tax commission permitted actual income to be ignored, the township's valuation was clearly in error. A hypothetical rental income based on comparable properties leased at more favorable rates was an improper basis for determining true cash value. Id., 455.
This Court reversed the tax commission and remanded for a determination of true cash value based upon actual income. Due to a procedural error also committed by the tax commission, a full de novo hearing was held by the Tax Tribunal.
Not surprisingly, evidence developed at the hearing on remand essentially mirrored that taken at the original hearing. The C.A.F. appraiser, Dean Nelson, testified on behalf of C.A.F. and again arrived at a 1971 assessed valuation of $787,500 by capitalizing actual income under the existing long-term lease. Nelson expanded his appraisal to cover the intervening years to 1975. The highest valuation under his calculations was $950,-500 for the assessment year 1974. These figures, according to Nelson, represented the fair market value of the property to a commercial investor. Nelson opined that investors would look at the cash flow under the existing lease to determine the fair market value of the property.
Norman Daniels again testified on behalf of the township. His testimony and appraisal were corroborated by a fellow tax commission appraiser, Russell Galvin. Both testified that the most reliable method of determining the fair market value of the property was by the capitalization of income method. Two alternative methods of valuation were utilized to check the validity of the capitalization of income method. Both witnesses determined that the valuations for the assessment years in question were as follows: $1,509,000 in 1971; $1,570,000 in 1972; $1,640,000 in 1973; $1,705,000 in 1974; and $1,771,000 in 1975.
Daniels and Galvin testified that these figures reflected the true cash value of the entire property and not just the value of the lessor's interest under the lease as reflected by use of actual rental income alone as suggested by the C.A.F. appraiser. On cross-examination both experts explained that, in essence, this meant that they looked to the hypothetical rental income of the subject property to make their calculations and ignored actual rent received under the lease. They even went so far as to say that to determine the total value of the subject property, actual rent received was irrelevant. Daniels admitted that with the exception of a change in the vacancy factor, there was no difference between the first appraisal submitted originally to the tax commission and the second appraisal provided to the Tax Tribunal at this hearing.
After taking the above testimony the Tax Tribunal made supplemental findings of fact, none of which are pertinent to the resolution of the present appeal, The Tax Tribunal then framed the legal issue which it deemed necessary for it to resolve in the dispute presented: "Where real property is subject to a long-term lease which currently provides less than the normal market rent, is such property to be assessed on a value predicated on the actual level of income?"
After a lengthy statutory analysis, the Tax Tribunal essentially reaffirmed the tax commission's earlier assessment of the C.A.F. property. With modification to the capitalization rates and expense figures, the Tax Tribunal predicated the value of the property on the capitalization of income method of appraisal as employed by the tax commission appraiser, Norman Daniels. Market rent in lieu of actual income was utilized to reach a valuation of $1,389,452 for the assessment years 1971-1974. The 1975 assessment year valuation was determined to be $1,473,506.
Emphasized throughout the opinion was the Tax Tribunal's belief that the Legislature did not intend the use of actual income to determine true cash value when that figure represented only a portion of the commercial income potential of the property involved. The appraisal submitted by C.A.F. appraiser Dean Nelson, consisting of a capitalization of actual income under the long-term lease, was considered to be "of little, if any, evidentiary value". The foremost reason for its rejection was the appraisal's failure to predicate valuation on "the amount of income the subject property is capable of producing".
The Court of Appeals reversed the decision of the Tax Tribunal and again remanded. The Court reasoned that our prior decision required that capitalization of actual income form the basis of the tribunal's calculations and held that by ignoring actual income and adopting the appraisal based upon the rate of return of comparable unencumbered property, the Tax Tribunal committed a clear error of law. CAF Investment Co v Saginaw Twp, 79 Mich App 559, 546-565; 262 NW2d 863 (1977).
On appeal, Saginaw Township contends that the Court of Appeals misconstrued our earlier decision; that our decision did not require the valuation of C.A.F.'s property to be based solely on actual rent; that actual rent need only be considered along with other relevant factors; and that if in light of unusual circumstances actual income did not reflect the true cash value of the entire property, actual income could be properly disregarded. The township also argues that to predicate valuation on the actual income received under a long-term lease allows a taxpayer to effectively "freeze" his real estate tax assessment against future inflation of land values which violates the constitutional requirement of uniformity of assessment.
C.A.F. responds that the Court of Appeals applied the law of the case to the Tax Tribunal decision and correctly found it to be inconsistent; that the only appraisal which conformed with the principles of true cash value mandated by our prior decision was Dean Nelson's; and that the Tax Tribunal's partial reliance upon an appraisal based on hypothetical income was in clear conflict with our prior decision. /
II
The law of the case doctrine dispenses with the need for this Court to again consider legal questions determined by our prior decision and necessary to it. As generally stated, the doctrine is that if an appellate court has passed on a legal question and remanded the case for further proceedings, the legal questions thus determined by the appellate court will not be differently determined on a subsequent appeal in the same case where the facts remain materially the same. Corporation & Securities Comm v American Motors Corp, 379 Mich 531; 152 NW2d 666 (1967); Palazzolo v Sackett, 254 Mich 289; 236 NW 786 (1931); American Ins Co of Newark v Martinek, 216 Mich 421; 185 NW 683 (1921); Allen v Michigan Bell Telephone Co, 61 Mich App 62; 232 NW2d 302 (1975); Topps-Toeller, Inc v Lansing, 47 Mich App 720; 209 NW2d 843 (1973).
The application of this principle was recognized early in the judicial history of this state. In Pierce v Underwood, 112 Mich 186-187; 70 NW 419 (1897), Justice Montgomery stated:
"This case was before the court at a former term, and is reported in 103 Mich 62 [61 NW 344], to which reference is made for a statement of the facts. The case has been retried at the circuit, and has resulted in a verdict and judgment in favor of the plaintiff. The brief of the appellant raises the same questions which were discussed in the former case and reargues them. We cannot review the questions which were there disposed of. If it is claimed that the conclusions of law reached on the former hearing were erroneous, the remedy is by a motion for a rehearing, but a ruling of this court in a case becomes the law of the case to govern a new trial, and is not subject to review thereafter."
The controlling facts in the instant dispute remain virtually identical with those which obtained when we decided this dispute the first time, other than the extension of the valuations through 1975. The appraisals submitted by the parties at the hearing on remand, in essence, utilized the same methods of valuation and arrived at virtually the same determinations of true cash value as before. The issues framed by the township on this appeal are nothing more than polemic restatements of the question decided on prior appeal.
Determinative in the present appeal is the Tax Tribunal's reliance on the appraisal of Norman Daniels which substituted the economic rental or hypothetical income for the actual rent of the subject property under the long-term lease, despite this Court's prior rejection of that criterion as a proper basis of valuation. The cross-examination of Daniels at the hearing on remand was, in part, as follows:
"Q. Well, but isn't it true, Mr. Daniels, that in arriving at total value in this case, the actual rent received from K-Mart was irrelevant?
"A. What's that again?
"Q. In arriving at total value, wasn't the actual rent received by C.A.F. from K-Mart irrelevant?
"A. In valuing the total property value, yes.
"Q. Yes, it was irrelevant?
"A. Yes.
"Q. So if you had not considered any actual rent at all, you would have come out exactly the same in your total value?
"A. In valuing the fee simple estate, yes."
The Tax Tribunal's acceptance of Daniels' appraisal based on the use of hypothetical income is evidenced by its adoption of the $2.00 per square foot rental income figure used by Daniels as opposed to the $1.30 per square foot actual rental figure. The error in basing valuation upon the rental value of comparable property was clearly stated by Justice Fitzgerald in our prior decision:
"The State Tax Commission's ultimate determination of true cash value of $1,440,000 is based in part upon the testimony of Norman Daniels on 'economic income' capitalization. To the extent it is based upon such evidence, the ultimate valuation relies upon a hypothetical rental income without consideration of actual rental income demonstrably related to fair market value. Such a valuation does not comport with the constitutional and statutory standard of 'true cash value'." 392 Mich at 454-455.
Remarkably, the Tax Tribunal is guilty of the same error for which we reversed the tax commission previously. It was presumptuous for the Tax Tribunal to embark upon a legal analysis of a question that was clearly presented to and decided by this Court on prior appeal. The Tax Tribunal's division of the C.A.F. property into "leased fee" and "leasehold" interests for purposes of establishing the true cash value of the "entire" property is an inappropriate subterfuge to justify the tribunal's determination to reject the use of actual income when it falls below the potential rental value of comparable properties currently on the market, and is unwarranted. The tax commission was reversed by this Court in our prior decision for its use of hypothetical income rather than actual income to reach a projected income figure. In its decision on remand, the tribunal has attempted to justify essentially the same method of valuation. In fact, the Tax Tribunal used the same "economic rental" figure of $2.00 per square foot supplied by Norman Daniels that the tax commission had employed in its calculations. We hold once again that such a method of valuation is erroneous.
The Tax Tribunal's reasoning upon remand, and the township's argument on appeal, is that our prior decision required only that actual income be "considered" in determining true cash value and that once it had given "consideration" to actual income and determined that it did not accurately reflect current rates of return of comparable property on the open market, actual income could be ignored.
The Tax Tribunal's estimation of the significance this Court placed on actual income in this dispute falls woefully short of the mark. All the appraisers testified that the capitalization of income method was the best indication of value. Commercial investors rely heavily upon cash flow represented by the capitalization of actual income to judge the fair market value of property. Having chosen that method of valuation, consideration of "economic income" as provided by statute was imperative. Our prior decision left no doubt that "economic income" meant nothing other than actual income under the circumstances of this case. CAF Investment Co v State Tax Comm, supra, 454. We said as much: "[I]n this case the record indicates that long-term lease rental fairly reflects economic circumstances at the outset of the lease term and bears a demonstrable relation to true cash value". Id., 456, fn 6. Other than the fact that actual income was less than the rate of return comparable property might receive under current market conditions, there was no suggestion that the lease was arrived at other than by arm's-length negotiations.
A
A calculation under the capitalization-of-income method yields a projected income figure. Often, as here, that figure alone will reflect the fair market value of the property. Saginaw Township and the Tax Tribunal have maintained throughout the course of these proceedings, however, that projected income, as reflected by the capitalization of actual income received under the long-term lease, does not reflect the true cash value of the entire property. Instead, they argue, any projected income figure calculated on the basis.of actual income values only the lessor's (C.A.F) interest in the property and ignores the lessee's (K-Mart) interest under the lease, and that the lessee has a measurable interest in the land due to the economic advantage it enjoys by renting property for an amount that is less than the prevailing rate in the current market.
Whatever merit that proposition might have in the science of real estate appraisal, consideration of a so-called lessee's interest by the means employed by the Tax Tribunal is foreclosed by our prior decision. Testimony of the tax commission experts was that in order to value the entire property, consisting of both the lessor's and lessee's interest, anytime actual income fell below the market rent or hypothetical income of comparable property actual income would be ignored, and it was ignored in this case for that very reason.
The fault of this methodology is that true cash value must equal the fair market value of the property to the owner. All experts conceded that economic income most accurately reflected that value. And, on the facts before us, economic income was nothing other than actual income, since it had been determined that for the years in question the lease rental reflected current economic circumstances and bore a demonstrable relation to true cash value. Moreover, to equate economic income with hypothetical income in every situation where actual rent under a long-term lease is less than the prevailing market rental would be to ignore the effect of the lease on a prospective investor's judgment regarding the fair market value of the property. That was the very situation confronting this Court on prior appeal. We refused to allow the consideration of actual income to be diluted by reference to the potential income of comparable property then, and we do so now.
B
In other cases there may well be other circumstances or considerations that necessarily require adjustment to the projected actual income figure to arrive at an accurate true cash valuation. These were mentioned in our prior decision and apparently were a source of the tribunal's confusion on remand. Justice Fitzgerald stated in 392 Mich at 455-456:
"By the holding in this case, we do not mean to suggest that the tax assessor, in utilizing the income capitalization approach to valuation, is limited to, and must accept, the actual rental figure under an existing long-term lease as the sole measure of projected income and basis for capitalization. In most cases such an approach to true cash value would lead to distorted valuation. Such factors as the right to repossession of the land at the end of the lease, and the length of the lease term often suggest that the projected income figure should at least in part be adjusted to reflect current market conditions. It may also be appropriate to adjust the projected income figure in circumstances where financing was obtained at a much more favorable rate than the current going rate, and there is a high current rate of capitalization, in order to reflect the fact that the income-earning capacity of the property is greater than consideration of the unfavorable long-term lease rental at current capitalization rates would alone suggest. Furthermore, we can envision circumstances in which it may be inappropriate to consider lease term rental as a component of projected income. Finally, there may be such facts, peculiar to the circumstances under consideration, as would indicate that the income capitalization approach is too speculative to be a reliable indicator of valuation. In such circumstances the tax assessor may base his assessment upon a more reliable method of valuation." (Footnotes omitted; emphasis added.)
Emphasized are certain "adjustments" to project income. The factors mentioned are by no means exhaustive. They were mentioned to illustrate that a projected income figure arrived at by virtue of a capitalization of actual income may not reflect a truly accurate picture of a property's fair market value. See Port Sheldon Twp v Ottawa County, 80 Mich App 91; 263 NW2d 299 (1977); Ramblewood Associates v City of Wyoming, 82 Mich App 342; 266 NW2d 817 (1978); Wolverine Tower Associates v Ann Arbor, 96 Mich App 780; 293 NW2d 669 (1980). They were not mentioned as reasons to ignore the use of actual income in calculating projected income in the instant case.
The right to repossession and the length of the lease in the instant case were accorded value in the Tax Tribunal's calculations by adjusting the rate of capitalization.
C
The precise error in the tribunal's calculation of true cash value having been indicated, and the Tax Tribunal having made detailed findings of fact on the expense and capitalization figures to be utilized, the actual per square foot rental value need now only be "plugged into" the formula to arrive at projected income.
Ill
Saginaw Township contends that to predicate value of a given property upon the taxpayer's rate of return under an economically unfavorable lease, while on the other hand valuating unencumbered property at current market level, is violative of the constitutional requirements of uniformity of assessment and due process.
The Tax Tribunal expressed much the same concern. In the Tax Tribunal's opinion not only must a valuation method reflect the value of propérty on the investment market, but it must also produce uniformity of assessment. Because a determination of projected income based on actual rental would depend upon the rental provided in the long-term lease, the Tax Tribunal felt uniformity of assessment could never be achieved unless market rent was utilized in every calculation.
We are not unmindful of the primacy of uniformity and equality in assessment. See Allied Supermarkets, Inc v Detroit, 391 Mich 460; 216 NW2d 755 (1974); In re Appeal of General Motors Corp, 376 Mich 373; 137 NW2d 161 (1965). The township's argument, however, begs the question. The touchstone of uniform assessment is the true cash value or usual selling price of the property. Assessment decisions must recognize limitations or restrictions which have a bearing on the selling price of property. Brae Burn, Inc v Bloomfield Hills, 350 Mich 425; 86 NW2d 166 (1957).
The township's appraiser testified that the property in the instant case would be bought and sold based upon the actual contract rent received under the long-term lease. We find that with certain adjustments this represented the true cash value of the property. Uniformity is achieved by assessing all property with the same true cash value at a consistent level.
We find C.A.F.'s answer to the Tax Tribunal's concern for uniformity of assessment persuasive. Properties may have similar physical characteristics, but differences in economic factors will determine the usual selling price of the properties. Properties encumbered by different lease terms, zoning restrictions, or deed restrictions, although physically similar, would not have the same cash value on the open market. See Kensington Hills Development Co v Milford Twp, 10 Mich App 368; 159 NW2d 330 (1968); Lochmoor Club v Grosse Pointe Woods, 10 Mich App 394; 159 NW2d 756 (1968). It would be incongruous, indeed violative of the rule of uniformity, to assess two properties the same despite the fact that their usual selling prices are different.
We find no uniformity or due process violations in an assessment premised on true cash value as defined by this Court.
IV
We conclude that in failing to use actual income as the basis of its capitalization of income, the Tax Tribunal disregarded the mandate of CAF Investment Co v State Tax Comm, 392 Mich 442; 221 NW2d 588 (1974), and thereby committed error.
We direct the Tax Tribunal to enter a specific order forthwith and bring an end to this excessively protracted litigation.
Using the taxpayer's actual income and expenses (which were accepted by the Tax Tribunal as accurate), and vacancy factor, and the rate of return and tax rate adopted by the Tax Tribunal, the values for 1971 and 1975 are as follows:
1971 1975
$1.31/sf $1.63/sf
Gross income 141,000 174.554
Vacancy and credit loss -2,820 (2%) -0-
Effective gross income 138,180 174.554
Expenses -33,866 -41,064
Net Income 104,314 133,490
Overall rate 10.00% 10.50%
Tax rate 2.23% 2.25%
12.23% 12.75%
Value Estimate:
197X_ 104,314. $852,935.40
1993
1975_ 133,490. $1,046,980.30
.1275
The 1971 value was applied to the years 1972, 1973, and 1974 as well. Thus, capitalization of actual income yields the following figures:
Tax Year Cash Value Assessment Level Assessment
1971 $ 852,935.40 17.04% $145,340.19
1972 852.935.40 50.00% 426.467.70
1973 852.935.40 48.44% 413,161.90
1974 852.935.40 50.00% 426.467.70
1975 1,046,980.30 50.00% 523,490.15
It is hereby ordered that the Tax Tribunal enter a final order in accordance with the foregoing figures. Interest on any refund shall be calculated as prescribed by MCL 205.737(4); MSA 7.650(37)(4).
No costs, a public question being involved.
Coleman, C.J., and Kavanagh and Levin, JJ., concurred with Ryan, J.
During the course of the appeal, the Legislature enacted the Tax Tribunal Act which transferred jurisdiction over property tax appeals from the tax commission to the Tax Tribunal. MCL 205.701 et seq.; MSA 7.650(1) et seq.
"True cash value" is the basis for the uniform general ad valorem taxation of real property. Const 1963, art 9, § 3. The Legislature, during the period in question, defined "true cash value" in MCL 211.27; MSA 7.27, to mean, in essence, the "usual selling price" of such property on the open market, taking into account various other factors, including the "present economic income of structures".
MCL 211.27; MSA 7.27 provided in pertinent part:
" 'Cash value' means the usual selling price at the place where the property to which the term is applied shall be at the time of assessment, being the price which could be obtained for the property at private sale, and not at forced or auction sale. Any sale or other disposition by the state or any agency or political subdivision of lands acquired for delinquent taxes or any appraisal made in connection therewith shall not be considered as controlling evidence of true cash value for assessment purposes. In determining the value the assessor shall also consider the advantages and disadvantages of location, quality of soil, zoning, existing use, present economic income of structures, including farm structures and present economic income of land when the land is being farmed or otherwise put to income producing use, quantity and value of standing timber, water power and privileges, mines, minerals, quarries, or other valuable deposits known to be available therein and their value.
"Except as hereinafter provided, property shall be assessed at 50% of its true cash value in accordance with article 9, section 3 of the constitution." 1973 PA 109.
This section has since been amended by 1976 PA 293, § 1; 1976 PA 411, § 1; and 1978 PA 25, § 1.
The terms "economic rental", "hypothetical rental income", "potential income/rent", and "rate of return on comparable property" are used interchangeably throughout this opinion.
It should be noted that our prior decision left open the prospect of utilizing other appraisal methods to determine true cash value in the appropriate circumstances. See 392 Mich at 450, fn 2. It was the unanimous opinion of the appraisers in the instant case that the capitalization of income method reflected the most accurate and reasonable assessment of fair market valuation and it is that method, therefore, which is the proper basis for the tribunal's assessment.
The Tax Tribunal developed the following additional facts and circumstances at the hearing on remand:
"1. At the time of the initial assessment in 1971, that triggered this appeal, petitioner refused to provide the appraisal firm that reappraised all the property in the assessment district with the income and expense data on which this appeal is based.
"2. During this hearing petitioner, represented by counsel only at the hearing, objected to the introduction of the mortgage and to petitioner's balance sheet for December 31, 1966, which were both introduced by respondent as its Exhibits No. 11 and 13, respectively, which were admitted as evidence.
"3. The balance sheet (respondent's Exhibit 13) indicated the total cost of subject property was $1,057,318.88, while the mortgage (respondent's Exhibit 11) indicated petitioner was loaned $1,250,000 on subject property on November 15, 1963, or for a mortgage loan of $192,681 in excess of cost. Petitioner offered no explanation for this excess.
"4. That there are only three or four developers in the country who have been able to develop 'K-Mart' properties. There was no adequate explanation offered as to why this was so.
"5. That S.S. Kresge Company is a very desirable 'Triple AAA' [sic] tenant from an economical standpoint.
"6. That petitioner's appraiser, in making his appraisal predicated on lease rental income only, did so on instructions of petitioner.
"7. One of respondent's witnesses, a Level IV certification appraiser for the State Tax Commission, spent eight weeks preparing the appraisal on this property utilizing a market rent income valuation approach.
"8. That assessors cannot compel taxpayers to furnish income and expense data for use in appraising on an income valuation method.
"9. That assessors can only obtain such data from those that are willing to give it.
"10. That both petitioner's and respondent's appraisers made appraisals for the tax years 1971 and 1975, respectively, and at the request of the tribunal prepared and testified to estimates of value for the intervening 1972, 1973 and 1974 tax years.
"11. That petitioner's appraiser had not prepared an appraisal based on the 'cost' or 'market' approach on the grounds that the income method was the best method and that in utilizing the lease rental income in lieu of market rent in 1975 he was acting on instructions of his client, the petitioner.
"12. Respondent's other expert witness appraiser prepared a 'cost' and 'market' approach appraisal for 1971 but, together with respondent's first expert witness who prepared the 'income' method appraisal, agreed that the 'income' method was the best method to be used with the subject property provided that the value could not be predicated on the lease rental income alone when such income is substandard compared to market rent and that in this case 'market rent' was used by them in valuing the property."
It is contended by the township and Justices Fitzgerald and Moody that when we directed the Tax Tribunal to "consider" actual income in our previous opinion, 392 Mich 456, fn 6, we required only that the tribunal think about using actual income as the basis of its calculation, with the option to disregard it if it so chose. The contention is untenable. To construe "consider" in that manner is manifestly illogical since the Tax Tribunal (then the tax commission) had received into evidence at the first hearing, the one reviewed in our previous opinion, the testimony of Dean Nelson, the C.A.F. appraiser, who maintained that the true cash value of the property in question must be determined with reference to actual income. Patently, when we ordered the Tax Tribunal to "consider" actual income it had already thought about, and rejected, its use. Indeed, we quoted the tribunal's recognition that its valuation of the property "was arrived at after 'consideration of all the information contained [in the noted facts]' ". 392 Mich 447 (quoting the Tax Tribunal) (emphasis added; brackets in original). Against this backdrop it is plain that the tribunal had considered actual income when we ordered it to "consider" the same. In this context, the only reasonable interpretation of "consider" is "use".
It should be noted that the appraiser for C.A.F. did adjust the capitalization rate to reflect the owner's reversionary interest under the lease. The Tax Tribunal presumably acknowledged the validity of providing for the valuation of that interest by such an adjustment by further modifying the capitalization rate before employing it in their calculations of projected income.
See Part IV, post.
The Tax Tribunal set forth its calculations as follows:
1971
Gross Income $214,522 (at $2/sq. ft.)
Vacancy & Credit Loss -10,726 (5%)
Effective Gross Income 203,796
Expenses -33,866
Net Income $169,330
Overall Rate 10.00 %
Tax Rate 2.23
Capitalization Rate 12.23 %
Value estimate by income approach:
$169,930 _ $1,389,452
.1223
1975
Gross Income $241,339 (at $2.25/sq. ft.)
Vacancy & Credit Loss -12,067 (5%)
Effective Gross Income 229,272
Expenses -41,400
Net Income $187,872
Overall Rate 10.50 %
Tax Rate 2.25
Capitalization Rate 12.75 %
Value estimate by income approach:
$187'872 = $1,473,506
.1275
The Tax Tribunal made findings of fact that the actual rental income per square foot under the long-term lease was $1.30 and $1.60 for the years 1971 and 1975, respectively.
Const 1963, art 9, § 3, provides, in part, as follows:
"The legislature shall provide for the determination of true cash value of such property; the proportion of true cash value at which such property shall be uniformly assessed
Pursuant to this constitutional grant of authority, the Legislature enacted MCL 211.27; MSA 7.27, which has been set forth and discussed at length above.
As to the years 1972, 1973 and 1974, the Tax Tribunal explained that the parties had submitted "estimates of value" for those years but characterized "these opinions" as "unsubstantiated estimates" and stated its conclusion that it should "restrict their use solely to determining that no unusual fluctuation of true cash value occurred in the intervening tax years". The Tax Tribunal concluded that "[t]here [was] no evidence that such a fluctuation occurred".