Title: Board of Supervisors v. HCA Health Services
Citation: N/A
Docket Number: 992459
State: Virginia
Issuer: Virginia Supreme Court
Date: September 15, 2000

Present:  All the Justices 
 
BOARD OF SUPERVISORS OF  
FAIRFAX COUNTY 
 
v.  Record No. 992459   OPINION BY JUSTICE BARBARA MILANO KEENAN 
 
 
 
September 15, 2000 
HCA HEALTH SERVICES OF 
VIRGINIA, INC., ET AL. 
 
 
FROM THE CIRCUIT COURT OF FAIRFAX COUNTY 
Jane M. Roush, Judge 
 
 
 
In this appeal, we consider whether the trial court erred: 
(1) in holding that the Board of Supervisors of Fairfax County 
(the Board) committed manifest error in making certain real 
estate tax assessments of a hospital property; and (2) in 
correcting the assessments under the evidence presented. 
 
HCA Health Services of Virginia, Inc. (HCA) filed a 
petition in the trial court under Code § 58.1-3984 alleging that 
the Board erroneously assessed its property, known as Reston 
Hospital (the hospital), in 1991, and in 1993 through 1996.1  The 
Board assessed the value of the hospital property in those years 
in a range between about $22,340,000 and $26,770,000.  HCA 
alleged, among other things, that the assessments exceeded the 
property's fair market value, which HCA contended was 
                     
 
1HCA Health Services of Virginia, Inc. was the owner of 
Reston Hospital from January 1, 1991 through October 31, 1996, 
when Columbia Arlington Health Care System, L.L.C., acquired the 
hospital as part of a joint venture.  We will refer to these two 
property owners collectively as HCA in this opinion. 
$12,500,000 in each of the five years at issue.  HCA and the 
Board agreed at trial on the value of the land on which the 
hospital was constructed but disagreed on the value of the 
improvements to the land. 
 
The hospital is a 127-bed facility situated on 14.3 acres 
in Fairfax County (the County) and contains 126,400 square feet 
of floor space.  The hospital was built in 1986 at a cost of 
$13,841,049, or $115.82 per square foot.  The hospital building 
was expanded in 1989 and 1991.  Between 1990 and 1996, the 
hospital's net revenues increased each year, from about $43.5 
million in 1990 to about $72 million in 1996.  The hospital is 
the only general hospital operating in the County that is not 
tax-exempt. 
 
In response to HCA's petition, the Board filed a plea in 
bar, asserting that HCA's cause of action on the 1991 assessment 
was barred by the limitation period of Code § 58.1-3984.  In an 
amendment to the statute effective July 1, 1991, the limitation 
period for challenging real estate tax assessments was reduced 
from five years to three years.2  HCA filed the subject petition 
challenging the 1991 assessment in the trial court in December 
1996.3  The Board argued that the three-year limitation period 
                     
 
2See 1991 Va. Acts, ch. 8. 
 
3The limitation period provided in Code § 58.1-3984 runs 
from the last day of the tax year for which an assessment is 
made. 
 
2
applied because HCA's cause of action on the 1991 assessment 
arose in July 1991 when the taxes were due and paid. 
 
HCA asserted that the July 1991 amendment to Code § 58.1-
3984 did not apply to its claim regarding the 1991 assessment, 
because the five-year limitation period was in effect on the 
date of the assessment, January 1, 1991.  The trial court agreed 
with HCA, ruling that the "injury occurs at the time of the 
assessment" and, thus, that the five-year statute of limitation 
applied. 
 
At a bench trial, the evidence showed that for the years at 
issue, the County's real estate appraisers used the depreciated 
reproduction cost approach to valuation to determine the fair 
market value of the hospital property.  They did not use either 
of two other common methods of valuing real estate, the sales 
comparison approach and the income capitalization approach. 
 
In applying the depreciated reproduction cost method of 
valuation, the County's appraisers used guidelines contained in 
a manual developed by the Marshall Valuation Service (the 
Marshall manual).  These guidelines incorporate cost data 
routinely used by real estate appraisers.  See Appraisal 
Institute, The Appraisal of Real Estate 350-51 (11th ed. 1996).  
The Marshall manual uses five general building classifications, 
which are termed Classes A, B, C, D, and S, based on a 
building's structural composition.  Within each general building 
 
3
classification, the Marshall manual provides for the further 
classification of buildings as "excellent," "good," "average," 
and "low cost," based on the quality of construction, and 
assigns a base cost per square foot for each of these 
classifications. 
 
In each year at issue, the County appraisers classified the 
hospital using the Marshall manual's classification system.  The 
appraisers adjusted the base cost per square foot stated in the 
Marshall manual to reflect such factors as the number of floors 
in the building, recent changes in construction costs, and 
variations in construction costs based on location.  The 
appraisers multiplied the adjusted cost per square foot, or 
reproduction cost, by the number of square feet in the hospital 
to determine the "base building cost." 
 
After consulting the depreciation table in the Marshall 
manual, the County appraisers deducted a percentage from the 
"base building cost" for depreciation, based on the age of the 
building and the appraisers' estimation of its expected life.  
The building depreciation percentages listed in the Marshall 
manual reflect typical physical depreciation as well as 
functional obsolescence, which represents any loss in value 
arising from a building's lack of utility or desirability.  The 
appraisers limited their deduction for functional obsolescence 
to the percentages listed in the Marshall manual and they did 
 
4
not make any deductions for external obsolescence, which 
represents any loss in value resulting from causes unrelated to 
the subject property.  The appraisers applied depreciation 
deductions ranging from 1% to 5% in the years at issue to arrive 
at the depreciated reproduction cost of the building. 
 
For 1991, the County's appraiser, Walter Girod, rated the 
hospital building as "Class B - Excellent," and multiplied the 
building's square footage by a reproduction cost of $175 per 
square foot.  Girod then applied a 1% depreciation reduction and 
concluded that the value of the improvements to the land was 
$19,089,015.4  When the land value was included, the total 
assessed value of the property in 1991 was $23,657,420. 
 
Girod testified that there are several sources of 
information for determining the actual construction costs of a 
hospital.  He stated that these costs are an important 
consideration in assessing the value of a property, but 
acknowledged that he could not remember whether he considered 
actual construction costs when performing the 1991 appraisal.  
Girod also testified that he did not consider any trends or 
changing conditions affecting the health care industry in making 
his appraisal. 
                     
 
4In each year at issue, the County's appraisals of the total 
value of the hospital's improvements included the value of the 
building, as calculated using the Marshall manual, plus $250,000 
to reflect the value of certain paved areas of the property. 
 
5
 
David Williams performed the 1993 and 1994 appraisals for 
the County.  In 1993, Williams assigned a "Class A - Good" 
rating to the hospital building.  His use of this rating 
resulted in a reproduction cost calculation of $166 per square 
foot, to which he applied a 2% depreciation deduction.  Williams 
testified that since the hospital was continuing to expand, he 
made no additional allowance for obsolescence.  In 1993, he 
concluded that the value of the improvements to the land was 
$18,756,475, and that the total value of the property was 
$23,432,985. 
 
Williams testified that at the time he made the 1993 
assessment, he "was not aware of" the hospital's actual 
construction costs.  He did not attempt to obtain this 
information from HCA and did not investigate whether there was 
external obsolescence or any other market factor affecting the 
value of the hospital. 
 
In 1994, Williams changed the classification of the 
building from "Class A - Good" to "Class B - Excellent" because 
he concluded that the hospital building had some characteristics 
of both classes A and B.  Williams' use of the "Class B - 
Excellent" rating resulted in a reproduction cost calculation of 
$200 per square foot.  After applying a 4% depreciation 
deduction, Williams concluded that the value of the improvements 
 
6
to the property was $22,091,920.  The total assessed value of 
the property in 1994 was $26,768,430. 
 
Williams testified that when making the 1994 appraisal, he 
did not consider the hospital's actual construction costs and 
did not request that information from HCA.  He stated that in 
determining depreciated reproduction costs, he consulted only 
the Marshall manual and did not investigate any effect that 
market factors may have had on the hospital's value. 
 
David S. Amey performed the County's 1995 appraisal on the 
property.  He assigned a "Class A - Excellent" rating to the 
building, which resulted in a reproduction cost calculation of 
$197.61 per square foot, and he applied a 5% depreciation 
deduction to this amount.  Amey testified that he inspected the 
hospital building and did not observe any signs of abnormal 
physical depreciation or functional obsolescence.  After 
reviewing the hospital's gross receipts and noting that its 
income was increasing steadily, Amey concluded that an 
additional depreciation deduction was not warranted.  He 
determined that the value of the improvements was $21,606,110, 
and that the total value of the property was $26,282,620. 
 
HCA appealed from the 1995 assessment to the County's Board 
of Equalization (BOE), asserting that the fair market value of 
the property was $11 million.  In support of its appeal, HCA 
provided the County with a list of sales of hospitals in 
 
7
Virginia and other states.  Amey testified that in response to 
HCA's appeal, he requested additional information about the 
listed hospitals from HCA so that he could perform a sales 
comparison analysis.  He explained that in order to perform even 
a "minimal [sales] comparison," he needed to know the gross 
income of each hospital so that a "gross income multiplier" 
could be calculated.  Amey testified that when HCA did not 
provide the requested information, he concluded that the 
depreciated reproduction cost analysis method was "the most 
valid approach" for valuing the property because there was 
insufficient market data available to perform either a sales 
comparison or a capitalization of income analysis. 
 
Amey testified that the actual construction cost of a 
building is relevant to the determination of a property's fair 
market value and should be considered when assessing a property 
such as the hospital building that was built "fairly recently."  
Amey explained that actual construction costs may be used to 
determine present reproduction costs by multiplying the actual 
costs by certain cost indexes.  However, he testified that he 
was not certain whether he had done these calculations when 
performing the 1995 appraisal.  Amey stated that during HCA's 
appeal to the BOE in 1995, he considered the building costs of 
construction projects at two "non-profit" hospitals in Fairfax 
County, which confirmed his judgment that the cost per square 
 
8
foot calculation that he had applied to the hospital building 
was reasonable.5
 
Lisa Altoft performed the County's 1996 appraisal of the 
hospital property.  Using a "Class A - Good" designation for the 
building, she calculated that the base reproduction cost per 
square foot was $162.12.  She applied a 5% depreciation rate to 
that amount and concluded that the value of the property 
improvements was $17,750,630.  The total assessed value of the 
property in 1996 was $22,447,140. 
 
Richard Carroll Green, Jr., assistant director of the 
County's Department of Taxation, testified that the County's 
appraisers did not have access to a central research file on 
hospital valuations.  He stated that he was unaware of any 
efforts by the County appraisers to track trends in the health 
care industry, and that he had no personal knowledge of any 
emerging problems facing that industry.  Larry L. Lewis, the 
County's supervising appraiser for the Taxation Department's 
commercial property division, testified that the County's 
appraisers routinely consider national sales data when 
appraising other types of commercial property, such as regional 
shopping malls. 
                     
 
5As a result of the 1995 appeal, the BOE reduced the total 
assessment of the property to $22,339,319, by re-classifying the 
building as "Class A - Good." 
 
9
 
HCA presented the testimony of James Kenneth Upchurch, who 
qualified as an expert witness on the subject of hospital design 
and planning.  Upchurch testified that the Reston Hospital had 
experienced some obsolescence over recent years.  He explained 
that since the hospital was first planned in 1983, public and 
private insurers had made "major changes" in the methods they 
used to reimburse hospital insurance claims.  Upchurch stated 
that as a result of these reimbursement changes, the demand for 
hospital inpatient services had decreased while the demand for 
outpatient services had greatly increased.  To illustrate this 
fact, he testified that about 80% of the surgical procedures 
performed at the hospital are done on an outpatient basis.  He 
stated that if the hospital had been constructed in any of the 
tax years at issue, it would have been designed differently to 
accommodate such demands for outpatient services. 
 
Upchurch testified that the hospital design was based on an 
"old model" of health care that does not adequately meet the 
needs of the current large volume of outpatients.  He explained 
that unlike the design of the Reston hospital, modern design 
practices provide for outpatient services on the ground floor of 
a hospital building, with large common areas, convenient patient 
access, and separation of these facilities from the inpatient 
areas.  Upchurch stated that the Reston Hospital design was 
deficient in several areas, including the main lobby, the 
 
10
waiting rooms for surgery and radiology, the cafeteria, and the 
facilities for support services.  He also explained that the 
hospital had an insufficient number of private rooms and 
critical care rooms, and that it was not in compliance with 
requirements for accessibility by disabled persons. 
 
HCA also presented the testimony of William H. Beazley, 
III, who qualified as an expert witness on the valuation of 
hospitals.  Beazley had prepared an appraisal report in which he 
concluded that the total fair market value of the hospital 
property for each of the five years at issue was $12,500,000.  
In reaching this conclusion, Beazley valued the hospital using a 
depreciated reproduction cost approach, an income capitalization 
approach, and a sales comparison approach. 
 
Beazley explained that the goal of an appraisal is to 
determine a property valuation that reflects all factors 
influencing the market value of the property.  According to 
Beazley, if an appraiser does not have a solid understanding of 
the hospital industry and the market in which hospitals operate, 
the use of a depreciated reproduction cost approach has a "great 
potential for error" since reproduction costs are not 
necessarily equal to a hospital building's value.  He explained 
that the use of a cost approach to appraise hospital buildings 
is "typically deficient" because of "weak treatment" of all 
potential factors influencing obsolescence. 
 
11
 
Beazley explained that market analysis data concerning the 
hospital industry provide an appraiser vital information for use 
in all three approaches to valuation.  In a depreciated 
reproduction cost analysis, market data provide information 
about current building costs as well as market conditions that 
are relevant to determining functional and external 
obsolescence.  Beazley noted that the Marshall manual directs 
appraisers to include a market study when conducting a 
depreciated reproduction cost analysis. 
 
Beazley testified that the amount of market data available 
concerning health care facilities exceeds the amount of data 
available for any other type of property he has appraised.  He 
explained that because of government regulation of the health 
care industry, hospital income and expense information is 
available from various government agencies.  Beazley also stated 
that there are more national sales of hospitals than sales of 
regional shopping malls, and that a "considerable amount" of 
information concerning hospital sales is readily available.  He 
identified numerous publications and resources available on the 
"Internet" that provide financial data, utilization statistics, 
and discharge and occupancy figures for a few thousand 
hospitals, including Reston Hospital. 
 
In his use of the depreciated reproduction cost method of 
valuation, Beazley used a "Class A - Average" rating for the 
 
12
hospital building.  He calculated that the hospital was entitled 
to depreciation deductions ranging between 40.08% and 48.63% for 
the five years at issue.  These depreciation deductions included 
physical depreciation percentages ranging between 12.5% and 25%, 
and external obsolescence percentages ranging between 23.63% and 
27.58%.  These calculations reflected Beazley's determination 
that the hospital had 44 excess beds and 39,885 square feet of 
excess or obsolete floor space. 
 
As part of his depreciated reproduction cost approach, 
Beazley testified that he analyzed the actual construction costs 
of the hospital in 1986, as well as the actual costs of the 1988 
and 1991 additions.  He explained that he applied a "trending 
factor" to these costs to determine a present cost value for the 
hospital, which he compared to the valuations he reached using 
other methods of cost analysis. 
Beazley also estimated the hospital's value using an income 
capitalization analysis.  Under this approach, Beazley 
determined the net revenues attributable to the hospital's real 
property, as distinct from its personal property, and multiplied 
that net income by a capitalization rate to arrive at a current 
or "actual" value of the hospital.  Beazley testified that he 
treated the hospital's outpatient revenue as "business revenue."  
Therefore, rather than including the actual outpatient revenue 
in his calculation of the hospital's net income, Beazley imputed 
 
13
rent to the hospital from the outpatient service area occupying 
12,660 square feet of the building.  He also calculated a ratio 
that he used to allocate all the hospital's expenses between 
outpatient and inpatient services. 
 
Beazley conducted a separate, sales comparison analysis to 
test the reasonableness of the valuations he reached using the 
depreciated reproduction cost and income capitalization 
approaches.  He considered eight "arms-length" sales of 
hospitals that occurred between 1991 and 1996, including sales 
of two hospitals in Virginia that are not tax-exempt.  After 
analyzing each sale, he arrived at a valuation of about $100 per 
square foot for the Reston Hospital. 
 
The Board presented the testimony of Courtney B. Lees, who 
qualified as an expert witness in the valuation of health care 
facilities, concerning her review of Beazley's deposition 
testimony and appraisal report.  She stated that the methods 
Beazley used to determine depreciation and obsolescence were 
flawed, and that Beazley improperly based his calculation of 
physical deterioration on a 40-year life expectancy for the 
hospital, when a 45-to-50-year life expectancy was more 
accurate. 
 
Lees also disagreed with Beazley's deductions for external 
obsolescence.  She testified that such deductions` should be 
taken only if there has been a dramatic decline in hospital 
 
14
occupancy combined with a loss of profitability.  She stated 
that neither of these factors affected the hospital's business 
at the time of the challenged assessments. 
 
Lees noted that in 1986, when the hospital was constructed 
after a state regulatory agency determined a need for 127 beds, 
the statewide hospital occupancy rate was 60%.  In 1991, the 
Reston Hospital's occupancy rate had declined to 53%.  Lees 
stated that this 7% decline was not "dramatic" and would not 
result in the 35% decrease in required beds on which Beazley had 
based his obsolescence analysis.  She noted that from 1990 to 
1997, the hospital had experienced increased total revenues and 
an increase in its profit margin.  Lees also testified that 
Beazley's imputation of rent for outpatient services and his 
allocation of expenses between inpatient and outpatient services 
were based on unexplained and unsupported formulas that were 
inconsistent with other calculations presented in his report. 
 
The trial court issued an opinion letter in which it 
concluded that the Board had committed manifest error in its 
assessments of the hospital property in the five years at issue.  
The trial court ruled that the County's appraisers committed 
three errors in applying the depreciated reproduction cost 
method of valuation.  First, they failed to consider the actual 
cost of constructing the hospital in 1986, which was $115 per 
square foot.  Second, the County's appraisers failed to consider 
 
15
market factors impacting functional and external obsolescence.  
Third, they misinterpreted the building classification 
guidelines in the Marshall manual and failed to classify the 
hospital building as a "Class A - Average" structure. 
 
The trial court also concluded that the County's appraisers 
erred by making "no effort or inquiry" to obtain sufficient data 
to consider any method of valuation other than the depreciated 
reproduction cost approach.  The court noted that HCA showed 
that there is a "wealth of information" publicly available 
concerning hospitals, including Reston Hospital, "if even a 
cursory examination or inquiry is attempted." 
 
The trial court held that the Board's assessments 
substantially exceeded the fair market value of the property, 
and that its actual fair market value was $12,500,000 for each 
of the years at issue.  The trial court entered final judgment 
correcting the assessments and ordering the Board to refund to 
HCA about $687,000. 
 
On appeal, the Board first argues that the trial court 
erred in holding that a five-year limitation period governed 
HCA's challenge to the 1991 assessment because the cause of 
action accrued when the taxes were due or paid, rather than on 
the date of the assessment.  The Board next contends that the 
trial court erred in concluding that the Board committed 
manifest error in determining the assessments at issue.  The 
 
16
Board asserts that the County appraisers' use of the depreciated 
replacement cost method as the sole method of valuation was 
proper, and that the County appraisers did not have available 
for their use sufficient reliable data to permit the application 
of other valuation methods.  The Board also asserts that the 
evidence did not show that the assessments of the hospital were 
inconsistent with proper and accepted appraisal practices.  We 
disagree with the Board's arguments. 
 
Initially, we conclude that the trial court did not err in 
holding that the five-year limitation period of former Code 
§ 58.1-3984 applied to HCA's challenge to the 1991 assessment.  
Under Code § 58.1-3281, real estate is assessed as of January 1 
of each year.  HCA's cause of action to correct the 1991 
assessment arose on the effective date of that assessment, 
January 1, 1991, when the five-year statute of limitations of 
former Code § 58.1-3984 still applied.  Since HCA filed its 
petition challenging the 1991 assessment within five years of 
the end of the tax year in which the challenged assessment was 
made, its petition contesting the 1991 assessment was not time 
barred.  See Code § 58.1-3984. 
 
We next consider general principles that govern the review 
of a petition for correction of erroneous assessment of real 
estate taxes.  Under Art. X, § 2 of the Constitution of 
Virginia, a taxing authority is required to assess real estate 
 
17
at its fair market value.  Generally, when a taxpayer challenges 
a real estate tax assessment by filing a petition in a circuit 
court to correct the assessment, the court is required to afford 
a presumption of correctness to the taxing authority's 
assessment of the real estate's fair market value.  Tidewater 
Psychiatric Inst., Inc. v. City of Virginia Beach, 256 Va. 136, 
140-41, 501 S.E.2d 761, 763 (1998); County of Mecklenburg v. 
Carter, 248 Va. 522, 526, 449 S.E.2d 810, 812 (1994); Board of 
Supervisors v. Telecommunications Indus., Inc., 246 Va. 472, 
475, 436 S.E.2d 442, 444 (1993); Arlington County Bd. v. 
Ginsberg, 228 Va. 633, 640, 325 S.E.2d 348, 352 (1985).  The 
burden is on the taxpayer to rebut this presumption by showing 
that the taxing authority committed manifest error or totally 
disregarded controlling evidence.  Code § 58.1-3984; Carter, 248 
Va. at 526, 449 S.E.2d at 812; Telecommunications Indus., 246 
Va. at 475, 436 S.E.2d at 444; City of Richmond v. Gordon, 224 
Va. 103, 110, 294 S.E.2d 846, 850 (1982). 
 
Once a trial court finds that a taxing authority committed 
manifest error in determining an assessment, the court is 
authorized to correct the assessment based on the evidence.  
Code § 58.1-3987; Carter, 248 Va. at 526, 449 S.E.2d at 812-13; 
Telecommunications Indus., 246 Va. at 476, 436 S.E.2d at 444; 
Board of Supervisors v. Donatelli & Klein, Inc., 228 Va. 620, 
627, 325 S.E.2d 342, 345 (1985).  When the trial court makes a 
 
18
finding of manifest error and corrects an erroneous assessment, 
the trial court's judgment comes to us with a presumption that 
the court's ruling based on its findings of fact is correct.  
Carter, 248 Va. at 526, 449 S.E.2d at 812-13; Donatelli & Klein, 
Inc., 228 Va. at 627, 325 S.E.2d at 345.  We will set aside the 
trial court's judgment only if it is plainly wrong or without 
evidence to support it.  Carter, 248 Va. at 526, 449 S.E.2d at 
813; Telecommunications Indus., 246 Va. at 476, 436 S.E.2d at 
444. 
 
When a taxing authority uses a depreciated reproduction 
cost approach as the sole method of assessing fair market value, 
after the taxing authority has considered but properly rejected 
the use of other valuation methods, the assessment is entitled 
to a presumption of correctness.  Tidewater Psychiatric, 256 Va. 
at 142, 501 S.E.2d at 764; Norfolk and W. Ry. v. Commonwealth, 
211 Va. 692, 700-01, 179 S.E.2d 623, 629 (1971).  Here, the 
evidence showed that the County's appraisers concluded that they 
lacked reliable data to consider other methods of valuation, 
even though they had not made an effort to acquire the data 
necessary to perform appraisals based on such other methods.  
These unsubstantiated conclusions by the County's appraisers 
were insufficient to show that the County considered and 
properly rejected other methods of calculating the value of the 
hospital property.  Thus, under the rule in Tidewater 
 
19
Psychiatric, the Board's assessment of the hospital based solely 
on the depreciated reproduction cost method of valuation was not 
entitled to a presumption of correctness.  256 Va. at 142, 501 
S.E.2d at 765; Norfolk and W. Ry., 211 Va. at 700, 179 S.E.2d at 
629. 
 
Since this assessment was not entitled to a presumption of 
correctness, HCA was not required to demonstrate that the Board 
committed manifest error in making the assessment, but was only 
required to meet the lesser burden of proving that the Board's 
assessment was erroneous.  Nevertheless, the trial court held 
that the Board committed manifest error in its assessment based 
on the manner in which the County's appraisers conducted their 
depreciated reproduction cost analysis.  We conclude that the 
evidence supports the trial court's determination. 
 
First, the trial court held that the County's appraisers 
erred in failing to consider actual construction costs in 
performing their depreciated reproduction cost analyses.  Two of 
the County's appraisers, Walter Girod and David Amey, conceded 
that actual construction costs are a relevant factor in making 
an assessment under the depreciated reproduction cost method and 
should be considered when using this method.  The record fails 
to show, however, that any of the County's appraisers considered 
the actual construction costs of the hospital in performing the 
appraisals under the depreciated reproduction cost method. 
 
20
 
Second, the trial court held that the County's appraisers 
erred in failing to consider market factors affecting 
obsolescence and depreciation when applying the depreciated 
reproduction cost approach.  Beazley's testimony was undisputed 
that an understanding of market factors causing obsolescence is 
essential to performing an accurate cost valuation of a 
hospital, and that the Marshall manual directs appraisers to 
include a market study in performing a depreciated reproduction 
cost analysis.  While the County's appraisers and Tax Department 
supervisors testified that they were not aware of any such 
market factors affecting Reston Hospital or the health care 
industry in general, the evidence also demonstrated that these 
witnesses had made no inquiries or efforts to learn about such 
factors.6
 
Third, the trial court held that the County's appraisers 
erred in failing to consider and properly reject other methods 
of valuation before deciding to use the depreciated reproduction 
cost approach as its sole method of valuation.  In Tidewater 
Psychiatric, we explained that use of the depreciated 
reproduction cost approach as the sole method for determining 
fair market value is erroneous only when the taxing authority 
                     
 
6David Amey testified that he considered performing a sales 
comparison analysis in response to HCA's appeal of the 1995 
assessment to the BOE, not as part of his appraisal of the 
property. 
 
21
fails to consider other factors that demonstrate that the use of 
this method plainly leads to unfair and improper results.  256 
Va. at 142, 501 S.E.2d at 764. 
 
As stated above, the evidence showed that the County's 
appraisers failed to consider market factors in the health care 
industry that bore on the issues of obsolescence and 
depreciation.  Beazley's testimony, which the trial court 
accepted, established that the failure to consider these factors 
resulted in a gross underestimation of the depreciation of the 
hospital building that led to unfair and improper results in the 
Board's assessments. 
 
Lastly, the trial court held that the County's appraisers 
improperly failed to classify the hospital building as a "Class 
A – Average" structure under the Marshall manual guidelines.  
Although the evidence showed that the hospital should not have 
been classified as "Class B – Excellent" in 1991 and 1994 since 
it was not a concrete structure, the evidence also showed that 
the classification of a building under the Marshall manual 
guidelines requires an appraiser to exercise professional 
judgment.  The record does not demonstrate that "Class A – 
Average" was the only reasonable classification for the hospital 
building that an appraiser could make in the exercise of such 
judgment.  Thus, we conclude that the evidence does not support 
the trial court's conclusion on this one issue.  This 
 
22
determination, however, does not require reversal of the trial 
court's holding of manifest error since the other evidence 
recited above is sufficient to support the trial court's 
conclusion. 
 
Since the evidence supports the trial court's conclusion 
that there was manifest error in the Board's assessments of the 
hospital property, we next consider whether the evidence 
supports the trial court's correction of the assessments.  See 
Code § 58.1-3987; Carter, 248 Va. at 526, 449 S.E.2d at 812-13; 
Telecommunications Indus., 246 Va. at 476, 436 S.E.2d at 444.  
We disagree with the Board's contention that the trial court 
erred in adopting Beazley's valuation methodology and his 
testimony concerning the fair market value of the hospital 
property because the testimony was based on unsupported, 
speculative assumptions.  Beazley testified in great detail, 
explaining the methodology he used to arrive at his valuations 
using cost, comparable sales, and capitalization of income 
approaches.  Contrary to the Board's assertion, this testimony 
included a detailed consideration of the actual construction 
costs of the hospital.  In response to Beazley's testimony, the 
Board presented the testimony of Lees, who rendered an opinion 
that there were errors in Beazley's valuation methods and 
conclusions.  Thus, the issue of the proper valuations of the 
hospital property presented a "battle of experts," and we will 
 
23
defer to the trial court's judgment of the weight and 
credibility to be given their testimony.  See Tidewater 
Psychiatric, 256 Va. at 141, 501 S.E.2d at 764; Norfolk and W. 
Ry., 211 Va. at 700, 179 S.E.2d at 629. 
 
We also note that the Board relied on the testimony of the 
County's appraisers who had performed the appraisals at issue to 
refute HCA's evidence of the fair market value of the hospital.  
Since the Board's evidence in this regard was based on the 
County appraisers' flawed application of the depreciated 
reproduction cost approach, we cannot say that the trial court 
was plainly wrong in adopting HCA's evidence and correcting the 
assessments in accordance with that evidence.  See Tysons Int'l 
Ltd. Partnership v. Board of Supervisors, 241 Va. 5, 12, 400 
S.E.2d 151, 155 (1991); Smith v. Board of Supervisors, 234 Va. 
250, 258, 361 S.E.2d 351, 356 (1987). 
 
Finally, we find no merit in the Board's argument that it 
is entitled to prevail on appeal because HCA did not present 
expert testimony establishing that the County's appraisers 
deviated from accepted appraisal standards when performing the 
contested appraisals.  Beazley testified, without objection, 
that when an appraiser fails to consider market forces in the 
health care industry when determining the fair market value of a 
hospital, the credibility of the appraisal is undermined.  As 
stated above, Beazley also testified that the Marshall manual 
 
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directs that appraisals based on a depreciated reproduction cost 
approach include a market study for depreciation factors such as 
obsolescence.  The record shows that the County's appraisers did 
not consider market forces in the health care industry or 
conduct a market study to determine depreciation related to 
those market factors.  The County's appraisers also did not 
consider actual construction costs in performing their 
depreciated reproduction cost analyses, even though the County's 
own evidence showed that such costs should be considered when 
performing appraisals under this approach.  The trial court, 
sitting as trier of fact, found this evidence persuasive on the 
issue of the County's application of the depreciated 
reproduction cost approach, and we will not disturb that finding 
on appeal. 
 
For these reasons, we will affirm the trial court's 
judgment. 
Affirmed.
 
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