Opinion ID: 2221533
Heading Depth: 1
Heading Rank: 7

Heading: adjustments to valuation by market area

Text: Taxpayers also claim that TERC erred in failing to find that TERC's adjustments to agricultural land by market area rather than by class or subclass of property was unlawful and void. Section 77-5026 provides: Pursuant to section 77-5023, if the commission finds that a just, equitable, and legal assessment of the property in the state cannot be made without increasing or decreasing by a percentage the value of a class or subclass of property as returned by any county, the commission shall issue a notice to the counties which it deems either undervalued or overvalued and shall set a date for hearing at least five days following the mailing of the notice. The notice shall be mailed to the county clerk, county assessor, and chairperson of the county board. At the hearing the legal representatives of the county may appear and show cause why the value of a class or subclass of the property of the county should not be adjusted. At the hearing, the commission may receive testimony from any interested person. The May 13, 1998, show cause hearing was held pursuant to this section. TERC's order of May 14 purported to be ordering adjustments to subclasses of agricultural land. These subclasses were, in actuality, the market areas delineated by the assessor. Agricultural land constitutes a separate and distinct class of property for purposes of property taxation. Neb.Rev.Stat. § 77-1361(1) (Cum.Supp.1998). Neb. Const. art. VIII requires uniform and proportionate assessment within the class of agricultural land. Agricultural land is then divided into categories such as irrigated cropland, dry cropland, and grassland. Neb. Rev.Stat. § 77-1363 (Cum.Supp.1998). These categories are further divided into subclasses based on soil classification. Id. Section 77-5027 provides in part, [TERC] shall, pursuant to section 77-5026, raise or lower the valuation of any class or subclass of property in a county when it is necessary to achieve equalization. (Emphasis supplied.) TERC's order of May 14, 1998, in which it ordered adjustments to agricultural land assessments (Area 1, no adjustment; area two, 62-percent increase; area three, 18-percent decrease; and Area 4, 92-percent increase), was not an adjustment to the value of a subclass of property as authorized by § 77-5026 and 77-5027. TERC has the authority to increase or decrease by a percentage the value of a class or subclass of property. In this case, TERC ordered increases and decreases by various percentages based on where the land was located within the market areas. Although TERC's order claims to be adjusting subclasses of agricultural land, a market area is not a subclass of agricultural land recognized by our statutes. Subclasses of agricultural property must be based on soil classification for purposes of taxation. § 77-1363. Although the assessor claims to have used soil maps in establishing the market areas, the market areas bear little resemblance to the soil map of Dawes County. Eaton admitted that township lines do not follow soil classifications. The market area map itself shows only the assessment-to-sales ratios for the various sales plotted on the map, with the market area boundaries drawn around them. The evidence in this case indicates that the market areas established by the assessor were not, in fact, based on soil classification, but, instead, were based on assessment-to-sales ratios. Subclasses of agricultural land must be based on soil classification, not upon where the land is located. The market areas do not constitute subclasses of agricultural land as defined by our statutes. Thus, TERC was without authority to order adjustments to agricultural land by market area, and such adjustments were in violation of the statutory scheme set out by the Legislature. The board argues that TERC correctly found on appeal that the establishment of market areas is a professionally recognized method of mass appraisal under Neb.Rev.Stat. § 77-112 (Cum.Supp. 1998), which provides: Actual value of real property for purposes of taxation shall mean the market value of real property in the ordinary course of trade. Actual value may be determined using professionally accepted mass appraisal methods, including, but not limited to, the (1) sales comparison approach, taking into account factors such as location, zoning, and current functional use, (2) income approach, and (3) cost approach. Assuming without deciding that market area analysis is a professionally accepted mass appraisal method for establishing actual value, the problem in this case is that the market areas were used by TERC as a basis for ordering adjustments for purposes of equalization under § 77-5026. When ordering an adjustment for purposes of equalization, TERC is authorized to adjust only by class or subclass. § 77-5027. The market areas involved in this case do not constitute a class or subclass of agricultural land; therefore, TERC's determination that market area analysis is a professionally accepted method of mass appraisal for purposes of ascertaining actual value does not justify TERC's 1998 adjustments. TERC was without authority to order adjustments to agricultural land based on the market areas because the market areas involved in this case do not constitute subclasses of property recognized by our statutes. We therefore determine that the adjustments to agricultural land valuations implemented by the assessor pursuant to TERC's May 14, 1998, order must be reversed.